We investigated two frequent flyer schemes for this article: Qantas and Virgin Australia.
- Qantas Frequent Flyer has roughly 12 million members, charges a one-off fee of $89.50*, and points expire if none are earned or redeemed within an 18-month period.
- Velocity Frequent Flyer (Virgin Australia) has about 8 million members, is free to join, and points expire if none are earned, redeemed or transferred within two years.
Qantas often runs promotions with free membership. At the time of publishing you could sign up for free through the Woolworths Everyday Rewards program.
What are your frequent flyer points worth?
We took a deeper look at frequent flyer points to find out what they're worth. Your points' value depends on how you choose to redeem them – domestic flights, international flights and consumer goods all have different average rates of return. We break it down in detail below, but assuming you're redeeming your points for economy airfares, your points are worth:
- Qantas: Around one cent each.
- Virgin: Around one cent each.
How to earn frequent flyer points
There are a number of ways you can earn points these days, including using a credit card, shopping with the airline's retail partners, or by using the airlines' travel money cards.
If you're trying to earn points through flying, figuring out how many points you'll earn on particular flights is confusing. For both Virgin and Qantas the earn rate depends on which airline you choose, which fare class you choose, whether it's domestic or international and whether you have status credits (which are earned through flying and take you on to different levels of membership).
Here's a breakdown of how to earn points through flights:
- For domestic flights, Virgin gives five points per $1 spent, which can be increased if you have more status credits. But given domestic flights aren't generally as expensive as international flights, you probably won't be racking up points very quickly unless you fly a lot.
- Internationally, points are earned based on how far you fly as well as how much you spend (fare class). If you're purchasing the cheapest fare (such as Virgin's Getaway or Elevate), the earn rate per mile is only half a point.
- Partner airlines: Virgin Australia has a range of airline partners you can earn points with, but the earn rate with affiliate airlines can be very low. A discount economy fare with Singapore Airlines will earn as little as 0.1 point per mile, meaning you'd only earn 391 points for the near 4000-mile trip from Sydney to Singapore. That equates to less than $4 worth of value in points.
- Qantas has a minimum point guarantee, which is 800 points per eligible flight and you can earn Qantas points based on a mix of how far you fly and how much you spend (fare class).
- You can earn miles on partner airlines, including Jetstar, though some of the cheapest Jetstar flights aren't eligible.
The best way to redeem frequent flyer points
Let's say you have some points you want to use. How do you get the best value out of them?
Even though the average redemption rate for flights is around one cent, this can vary a lot. Depending on how they're redeemed, we found the value of points ranged anywhere from half a cent to over six cents. When it comes to redeeming your points, we found that:
- seat upgrades provide the best value
- flights tend to be the next best value
- products and gift vouchers tend to provide the worst value.
The best value way to redeem your points is with seat upgrades.
- Qantas: Points redeemed for upgrades are worth an average of 4.8 cents for domestic flights and 2.4 cents for international.
- Virgin: Points redeemed for upgrades are worth an average 6.2 cents for domestic flights and 5.4 cents for international.
Flights will generally be the next best way to spend your points.
- Qantas: Domestic and international flights offer similar value. Points redeemed for the cheapest economy fares are worth on average 0.9 cents. You may be able to make your points go further by choosing Qantas' "classic award" tickets, which sometimes offer better value, but with limited availability.
- Virgin: You'll get better value redeeming points for domestic over international fares. Points are worth on average one cent if used for domestic flights, versus 0.7 cents for international.
Products and gift vouchers
Products and gift cards are the worst value way to use your points.
- In both the Qantas and Virgin store, points redeemed for products or gift vouchers are on average worth around half a cent.
Are frequent flyer points worth less now?
A CHOICE member recently rang us to complain about the falling value of frequent flyer points, telling our customer service staff he thought points were less valuable than in the recent past. He's right.
When we last did our frequent flyer point breakdown in June 2015, points used for seat upgrades were worth as much as 14 cents. Now the best-value upgrades we found were worth less than half that.
When it comes to redeeming points for flights, in 2015, points were worth on average 1.4–1.5 cents on domestic flights, and 0.7–0.8 cents on international flights. Now, Qantas points redeemed for flights are worth closer to 1.1 cents on domestic, and 0.7 cents on international, while Virgin points are worth around 1 cent for domestic and 0.7 cents for international.
In February 2016, new laws were introduced to ban unfair credit card surcharges. This was a hard-fought win for consumers. The new laws stop businesses from using blanket card surcharges to offset the cost of expensive rewards programs that only benefit a small number of people, like Amex card holders or frequent flyers.
With unfair surcharges removed for the benefit of all consumers, those individuals who take advantage of rewards programs are no longer subsidised. We're not surprised to see that, in these circumstances, airlines are reducing the value of frequent flyer points.
This may be disappointing to frequent flyers, but removing unfair surcharges benefits all of us. This is a great reform for all consumers who don't want to have to pay for someone else's seat upgrade through an unfair surcharge.
Why the airlines love frequent flyer programs
An industry insider we spoke to, Clifford Reichlin, argues that frequent flyer points are a "promotional and marketing currency" designed to get consumers to fly more, not to help them save money. His online forum, The Australian Frequent Flyer, has been a busy stopover for travellers since 2002.
"What they really want to do is convert the occasional traveller into a frequent traveller," Reichlin says. "It's not a loyalty program and has nothing to do with loyalty. The airlines aren't rewarding you for flying with them, they're trying to get you to buy more airline tickets, preferably the pricier ones. If it were a straight-up loyalty program, your points wouldn't expire and the programs wouldn't be so difficult to figure out."
A CHOICE community member wrote in to tell us about an experience he had which demonstrates the value of shopping around before blowing your hard-earned frequent flyer points.
Our member booked a trip for himself and his wife to Honolulu on a Qantas "classic award" arrangement, using 61,500 points per person and paying $406.26 per person in fees and charges. He subsequently received a Jetstar email with a special offer for return flights at just $567 each, including all fees and charges, for the same travel dates. "Had I known that I would have been able to use the Jetstar offer, I would not have used my Qantas points in this way," he said.
How airlines make money from frequent flyer programs
Not only do frequent flyer programs gain customer loyalty, they also contribute a significant profit to airlines' bottom lines.
Airlines sell points to third parties, such as credit card companies, or businesses such as hotels and car hire companies, who use the points to entice customers. So long as they sell the points for more money than it costs them for customers to redeem them, the airline is winning. Even better for them if the points expire before they're redeemed.
It's clear who benefits most from the frequent flyer scheme. It's "definitely the airline", says Steve Worthington, an adjunct professor at the Swinburne Business School. In addition to being a great money maker, he says the real cost to the consumer of loyalty programs is the personal data that you give away almost for free.
When spending your points, you're sharing what you're buying through the airlines' online stores as well as through all the other frequent flyer incentives. This consumer spending data is very valuable.
"It's not really about loyalty, it's about gathering information. I don't think we realise how much information we give away when we join," says Worthington.
As long as you're getting back more in equivalent rewards than you're paying to earn the points, you may eventually earn enough for a free flight. But beware of credit card fees or buying more expensive plane tickets in order to earn points.
With stiff competition for passengers, you may save more than the points are worth simply by buying the cheapest ticket. Unless you fly often and are prepared to get your head around a very complicated (and ever-changing) system, don't let the pursuit of frequent flyer points dictate your itinerary.
And before you think about spending any extra money in order to earn points, weigh up the reward benefit by multiplying the points by 0.01 – the result will be the approximate dollar value of your points.
Top tips to earn and use your frequent flyer points wisely
- Don't let potential frequent flyer points sway your decision about which airline to choose. Just choose the flight with the most competitive rate.
- If you're spending points, you'll get the best bang for your buck on seat upgrades.
- Calculate roughly how much your points will be worth – times them by 0.01 (one cent).
How we investigated
To determine the value of a reward flight, we looked at the cheapest economy return flight (including baggage) to six destinations, over four different periods in the year for both Qantas and Virgin Australia (24 flights for each airline, including fees and taxes) and then divided the points by the dollar value of the standard flight (including fees and taxes). Flights used were Sydney–Brisbane, Melbourne–Sydney, Perth–Adelaide, Melbourne–Auckland, Sydney–Bangkok and Sydney–London.
Products and gift vouchers
In both the Qantas and Virgin stores, we looked at four gift cards, one TV and one vacuum cleaner.