Qantas earns over $1billion per year from Frequent Flyer points

Qantas might be struggling, but its Frequent Flyer program is raising over a billion dollars a year, along with almost $350 million in ancillary fees from baggage and other non-ticket extras.

The Frequent Flyer program revenue catapults it to being the world's top earner of ancillary fees, outside of the US airlines.

The dollar value of the extra fees Qantas earns is higher even than airlines like RyanAir and Tiger Airways, who rely on directly charging customers for extra fees, and don't have frequent flyer programs.

The author of an annaul report tracking airline ancillary revenues, US airline consultant Jay Sorensen, says Qantas earns $1.5billion per year in ancillary revenues. But $1.1 billion of this is earned from Qantas' many Frequent Flyer point partnerships with credit cards and retailers, who have to buy the points from Qantas.

"Points in the program have seemingly gained the status of official currency through partnerships with major Australian retailers and banks. With 7.2 million members, that’s a stunning A$154 in revenue for every programme member," notes Sorensen.

Qantas is only beaten in total dollar value by the three major US airlines: United/Continental, which collected a staggering $5 billion in ancillary fees, Delta ($3.7 billion) and American Airlines (nearly $2 billion).

Other airlines do charge more as a percentage of their overall revenue -- Las Vegas super-budget airline Allegiant Travel topped the list, earning 29.2% of revenue from add-on fees.

Australia's Tiger Airways was the fifth worst in the world in terms of the percentage of revenue it earned from additional fees -- 20.5%.

According to Sorensen, airlines are mostly earning fees from charging for baggage (which possibly explains why Qantas is playing hardball with its new bag fees, even for customers mid-way through their itinerary with Qantas), along with credit card reward scheme fees.

Airlines are now charging nearly eight times more in ancillary fees than they were in 2007.

"The oil price peak of 2008 caused huge losses and prompted US airlines to start charging travellers for checked baggage. Ultimately, the ripple effect of these fees has eased the path for more airlines to consider à la carte additions and catalysed a stunning increase of 778% since 2007."

You can read the full report here.

Despite being a big earner of ancillary fees, and having a dominant position in domestic travel, Qantas today offered voluntary redundancy to all 7,000 cabin crew in an effort to cut its costs.