Qantas’ loyalty arm now sits at the centre of the airline’s turnaround story after a turbulent few years that saw customer trust damaged and investors demanding changes at the top. Today the airline is investing heavily in rebuilding that relationship while using the loyalty program as a key engine of profit and growth. The frequent flyer business delivered about $556 million in revenue last year and now underpins how Qantas sells flights, partners with banks and retailers and keeps customers locked into its ecosystem.
As part of its next phase, Qantas is preparing to let members use points to book premium economy seats on partner airline Emirates for the first time, a move designed to unlock more international “sweet spot” redemptions at a time when demand for rewards seats is strong. Over the past year, members booked roughly 15% more reward seats and secured around 10% more international upgrades, helped by an expanding partner network that now spans close to 50 airlines and about 1300 destinations. Yet alongside these improvements the airline has quietly raised the number of points needed for some redemptions and restricted its lowest tier members from booking certain premium cabins on partners. Many see these changes as a devaluation of their hard earned points.
The loyalty strategy also unfolds against a shifting regulatory and competitive backdrop. The Reserve Bank of Australia is working on changes to card surcharging rules that could limit extra fees on some higher fee, points earning credit cards and this raises questions about how profitable those cards remain for airlines and banks. While rival Virgin Australia has warned that any clampdown on surcharging could weigh on earnings from its Velocity program, Qantas appears less exposed because around 80% of its cards earn Qantas points directly rather than via bank rewards schemes. It also has a wider network of partners from roughly 33 direct earn credit cards to about 800 overall earn and burn partners compared with fewer than 500 partners on the Virgin side.
Looking ahead, the Qantas loyalty business seems to be turning into a diversified ecosystem rather than just an airline points scheme, with new retail tie ups and more ways to earn and spend on the ground as well as in the air. Expanding access to Emirates premium economy and building more everyday partnerships appears likely to help absorb the growing 18 million strong membership base, which Qantas says is increasing its active users by around 8% a year. However, the tension between richer redemption options and periodic points inflation, along with regulatory uncertainty on payments, means the path to that $1 billion loyalty target still depends on how long customers are willing to see value in the program and keep choosing Qantas over its main competitor.
