Etihad looks to float its Etihad Guest frequent flyer scheme

By David Flynn , February 13 2014
Etihad looks to float its Etihad Guest frequent flyer scheme

Etihad Airways hopes to eventually put its frequent flyer program on the market, the airline's President and CEO has revealed.

"[A float] is part of the end-game" Hogan said of the Etihad Guest scheme in an interview with The Australian Financial Review at the launch of the new Etihad Regional airline.

"We are building it with airlines, but we will also build it with other partners I'm not going to talk about" Hogan allowed, tipping an expansion of the program which will involve earning points through non-airline sources.

Describing Etihad Guest as "a lifestyle program", Hogan promised that "there will be other stakeholders outside the airline sector."

In December last year Etihad spun out its frequent flyer program into a stand-alone legal entity named Etihad Guest LLC, although like its parent airline is ultimately wholly owned by the Government of Abu Dhabi.

Frequent flyer schemes are often considered one of an airline's cash cows with high earnings unfettered by expensive aircraft, rising fuel costs, staffing and other costs which typically drag on an airlines's revenue.

The Qantas Frequent Flyer program, for example, took a record $1.2 billion in billings across the 2013 financial year to contribute $260 million (before interest and tax) to the Flying Kangaroo's pouch.

The scheme is estimated to be worth as much as $3 billion dollars – more than Qantas itself – which has led to speculation that Qantas could sell off a 49% minority stake in the program to raise between $1.3 billion and $1.56 billion for the airline, according to J.P. Morgan.

Read: Could Qantas sell off its frequent flyer program?

However, another analyst has suggested that Qantas hang onto this lucrative 'crown jewel' and instead sell off as many as 42 billion points – yes, that's billion – to its network of retail partners and potentially raise  a handy $500 million in much-needed cash.

Read: "Qantas should flood market with frequent flyer points"

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David

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

Virgin Australia - Velocity Rewards

26 Aug 2013

Total posts 8

Cash Cows!!?!? How do airlines make money from their FF Program?

24 Oct 2010

Total posts 2405

Lazarus: airlines make money on frequent flyer schemes by

1. creating the points

2. selling them to partners

3. who then 'give' them to customers as part of an incentive for getting that customer's business (eg a hotel chain, a credit card, a shop, a restaurant)

4. and then those customers take their points back to the airline to use for buying flights, upgrades or goodies at an online frequent flyer store.

They key here is that the airline has full control over this virtual currency (points), setting both the sell and buy rates - the rates at which it sells points to partners and buys them back from the public (in exchange for flights etc).

It's got to be the next best thing to printing your own money!

Qantas - Qantas Frequent Flyer

07 Jan 2014

Total posts 6

@David, thanks for the explanation.

This sell off of an airline's FFP is this what Cathay Pacific has done with their Marco Polo Club where you earn Asia Miles...?

The question is what is the value of an independent frequent flyer programme if the airline calls the shots? Why would anyone want to be an owner?

Or is the value in tracking the every movement of your members and selling that data to third parties?

Qantas - Qantas Frequent Flyer - Chairmans Lounge

01 Sep 2011

Total posts 387

You got oit Bab...

Right. So the airline leaves the new owner to unlock the value of the intellectual capital of the programme, while focusing on selling to the programme as many frequent flyer miles as possible?

Consequently the new owner is taking on the risk that the intellectual capital, yet to be unlocked could potentially be worthless (because the market is already awash with behavioural data)?


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