QFF being taken over?

Random question/thought/discussion topic, with the constant talk of QFF points being taken over, taken away, devalued, etc, what would seriously happen to Qantas if everyone logged on today/tonight and redeemed for anything and everything, such as all the gifts/present etc, vouchers, hotels, car hire, and of course flights..... would it be like everyone going to the bank to withdraw there money. Could it send Qantas to the brink (as i'm writing this question another thought comes to mind) would they then flood the market with points to recoup the money i.e Hugh bonuses from bank credit cards, everyday rewards bonuses, hotel bonuses and even flight point bonuses.

Qantas's Cash balance would go pretty quickly.

But reality is, unless they cancel everuy route on Thursday (instead of a chunk), redeeming for airline flights (which have marginal cost) will always be the better option for most.

Kim, please consider that those QF points are like cash to QF. So, QF has already been paid good cash by those third parties to be able to offer them for credit use, sign bonuses, whatever. If people "cash in" their points, thus buy merchandise, gift cards, etc., QF can't lose because the pay back rate is a fraction of the sell rate.

Hence, people rushing to use their points as effective cash probably ain't a big problem (unless QF has got it's figures wrong, which it probably hasn't given the huge profits from the FF scheme).

Now, as far as upgrades and reward seats are concerned, QF is already controlling the supply side - the number of seats made available - they can and do control this all the time. Nothing new there. If there was a rush on seats, the seats allocated simply get used up and supply is exhausted within budget. Or if they don't want to book up the liability as a cash liability (which happens when the reward seat is actually used) they can pull the inventory from the booking engine. Simple.

The real problem for the consumer is if

1) the supply of upgrades/reward seats is reduced

2) the cost of upgrades/reward seats goes up (more points needed = devaluation)

3) cash components of reward seats (so called fuel surcharges = devaluation) goes up

Again, QF has total control!

The obvious counter argument to QF doing 1 to 3 is a reduction in perceived value in the FF scheme by the customer dribing churn to rival airline F schemes, but since most never earn significant numbers of points and many frequent flyers are paid by their companies to fly, most won't even notice when the devaluation occurs, and those that do will probably forget within a short period. QF knows this.

The temptation to devalue could be overwhelming in harsh economic times (read bad management decisions). If smartish (and as has previously happened) QF they would devalue the premium rewards hugely (United just did this) and leave the low end awards untouched or very slightly improved, which would enable the QF-loving media to headline a good news story about QF whilst the rare high end highly loyal and ironicvally high yield frequent flyer gets fleeced yet again.

But then the smart high end customer will have:

1) already booked reward flights (which are refundable) in case of a devaluation

2) signed up for alternative frequent flyer schemes which give 2 to 3 times better value for the points earned/amassed/bought (read American, Alaskan, etc) once they hit their desired status with QF (e.g. Gold or Platinum for the year and/or Lifetime Gold).

3) transferred their business to Virgin who don't charge the excessive "fuel surcharges" on reward seats and cough up points on a dollar spend not milesage basis domestically

A simplification and all individual travellers have different preferences and optimal strategies...

Good question Kim great response Platy.

PLATY, sorry but dont agree.

A couple of thoughts on what I think is the unlikely event of a run on QF point redemptions:

• This would only occur where there was strong rumour or reporting of imminent receivership
• QF will likely have a plan ready for this situation. If they dont, then silly them.
• The web servers would crash under this load. I doubt they would rush to put them back online.
• Call centre's would be swamped. Likely meltdown also.
• Redemptions would be for third party products only - why redeem a flight with a carrier you think might dissappear. Of these goods would be the likely choice over services (partner flights/hotels/etc). QF would immediately exercise it's right to withdraw the third party goods as a redemption option.
• Without close examination of QF's books, I doubt they are carrying the cash or other liquid assets to cope. Unlike a bank, there is also no regulator looking at this, nor would they be subject to any real stress testing of how they would handle such a situation.  (PLATY - The income received on selling points wont have been quarantined to an account in QFF waiting to pay for future redemptions - it will have flowed from QFF back into QF to cover the losses occuring elsewhere.)
• The programs economics are based on the assumption that a large swathe of the points will never be redeemed. They will have calculated their expected liabilities on this assumption. A run on point redemptions would cause this assumption to not hold true.
• So if mass redemptions for third party goods and services did occur in a short time, I would expect they may become insolvent very quickly ... enter KordaMentha fromstage left.

Actually this would be a godsend for Qantas. FF points are treated as a liability in the accounts and once redeemed, can be treated as revenue. This would massively affect their expected $300m expected 2nd half loss, in a good way.