OK someone here might know the answer to this. I was having an argument with a friend who told me frequent flyer programs were worth millions of dollars. I thought what they were saying was really ridiculous but some internet research showed me she was right. How can this be true???
How can you value a program that just has points? They don't even make anything and can just invent as many points as they like.
In fact, I just found an article where Qantas said their FF program is worth 3.5 billion dollars! HUH?
It takes a bit to get your head around Irene, especially the fact that an airline can "print points" as much as it likes -- but the thing is those points have to be able to turned back into tangible rewards; either flights or goodies like coffee machines etc.
Also, bear in mind it's not just the airline issuing the points -- hotels, supermarkets, credit card providers, etc, all buy points from airlines for their customers as rewards.
So, although it might not seem like it, those points have real value -- and airlines have to keep cash in the bank (in one form or another) to cover the cost of redeeming those awards.
Irene: your friend may also have been refering to the fact that it's been rumoured from time to time that Qantas would sell off part or all of its Frequent Flyer program and the asking price could be - get this - billions (a quick little earner for Qantas).
Excuse me while I go off on a tangent - I am not sure but my understanding is a database or any loyalty program is worth more than meets the eye. They have very specific demographic data and can track trends, spending habits etc. Plus they 'own' that data. This is why services like facebook are free for users but are so valuable for the owners. In terms of FF points, they often bet on you using their airline over another if the price point is similar, you will go with the slightly higher fare 'for the points'
I've known people who work in the airline industry managing to get awesome benefits from ff programs just by knowing how to work the system. Quite funny some of the extraordinary lengths they go to but it goes to show that they have a monetary value since you have to spend to get the points in the first place.
Lets say you have an American Express Qantas Platinum card
For every dollar spent you may recieve up to 5 points.
For every dollar you spend, American Express makes 4.35% from that
From that 4.35%, Qantas makes 33.17% (or something like that, it may have changed)
AMEX makes money because they entice you into spending money so you will get points
Qantas makes money because AMEX makes you spend, and they get a percentage of their profits
its complicated but very interesting. And also, you may have to spend, lets say, $300,000 on your AMEX card to recieve a First Class flight to London, valued at say $13,000. They make so much money from this, and also the name Qantas Frequent Flyer only really benefits the Business traveller who goes to Sydney every second day, if you only flew once every 3 months, it may take you 7 or 8 years to save up enough points for a flight from Melbourne to Brisbane.
Hi Guest, join in the discussion on
OK someone here might know the answer to this.
eyeshan
eyeshan
Member since 04 Nov 2010
Total posts 1
OK someone here might know the answer to this. I was having an argument with a friend who told me frequent flyer programs were worth millions of dollars. I thought what they were saying was really ridiculous but some internet research showed me she was right. How can this be true???
How can you value a program that just has points? They don't even make anything and can just invent as many points as they like.
In fact, I just found an article where Qantas said their FF program is worth 3.5 billion dollars! HUH?
danwarne
danwarne
Qantas
Member since 24 Oct 2010
Total posts 21
It takes a bit to get your head around Irene, especially the fact that an airline can "print points" as much as it likes -- but the thing is those points have to be able to turned back into tangible rewards; either flights or goodies like coffee machines etc.
Also, bear in mind it's not just the airline issuing the points -- hotels, supermarkets, credit card providers, etc, all buy points from airlines for their customers as rewards.
So, although it might not seem like it, those points have real value -- and airlines have to keep cash in the bank (in one form or another) to cover the cost of redeeming those awards.
David
David
Member since 24 Oct 2010
Total posts 1,016
Irene: your friend may also have been refering to the fact that it's been rumoured from time to time that Qantas would sell off part or all of its Frequent Flyer program and the asking price could be - get this - billions (a quick little earner for Qantas).
An ABC report in 2008 estimated Qantas' FF program "could be worth up to $3.5 billion to the airline." (http://www.abc.net.au/pm/content/2008/s2291333.htm) Yes, that's billion!
Kat
Kat
Member since 21 Nov 2010
Total posts 4
Excuse me while I go off on a tangent - I am not sure but my understanding is a database or any loyalty program is worth more than meets the eye. They have very specific demographic data and can track trends, spending habits etc. Plus they 'own' that data. This is why services like facebook are free for users but are so valuable for the owners. In terms of FF points, they often bet on you using their airline over another if the price point is similar, you will go with the slightly higher fare 'for the points'
Jenw
Jenw
Singapore Airlines - KrisFlyer
Member since 20 Jan 2011
Total posts 2
I've known people who work in the airline industry managing to get awesome benefits from ff programs just by knowing how to work the system. Quite funny some of the extraordinary lengths they go to but it goes to show that they have a monetary value since you have to spend to get the points in the first place.
yoshisturt
yoshisturt
Qantas - Qantas Frequent Flyer
Member since 29 Mar 2012
Total posts 45
Another thing is when;
Lets say you have an American Express Qantas Platinum card
For every dollar spent you may recieve up to 5 points.
For every dollar you spend, American Express makes 4.35% from that
From that 4.35%, Qantas makes 33.17% (or something like that, it may have changed)
AMEX makes money because they entice you into spending money so you will get points
Qantas makes money because AMEX makes you spend, and they get a percentage of their profits
its complicated but very interesting. And also, you may have to spend, lets say, $300,000 on your AMEX card to recieve a First Class flight to London, valued at say $13,000. They make so much money from this, and also the name Qantas Frequent Flyer only really benefits the Business traveller who goes to Sydney every second day, if you only flew once every 3 months, it may take you 7 or 8 years to save up enough points for a flight from Melbourne to Brisbane.