Qantas Award Charges Outrageous

[rock86]

Why do Qantas impose higher carrier charges for premium award seats than economy?

I'd guess their reasoning is (at least partly) that as a premium seat occupies a greater area of the plane, then it also uses a greater proportion of fuel relative to that of an economy seat.

 

[Dr Ralph]

Why do Qantas impose higher carrier charges for premium award seats than economy?

Because they can.

 

[DerekG]

Why do Qantas impose higher carrier charges for premium award seats than economy?

Because they can & I guess it helps them recover the cost of the better meals they (are supposed) to serve.

 

[Mattg]

Why do Qantas impose higher carrier charges for premium award seats than economy?

I would say "supply and demand".

 

[MEL_Traveller]

Why do Qantas impose higher carrier charges for premium award seats than economy?

On some routes there may be a premium tax charged for higher classes of service (eg London). On other routes, no real reason other than they can. The weight of the person is the same whether they fly economy or premium. The seat weighs more in premium, but that seat has to fly regardless of whether it's occupied or not. So it's simply a matter of making the most money they can.

 

[jgm]

Because they can & I guess it helps them recover the cost of the better meals they (are supposed) to serve.

More likely to fund the CEO's salary & bonuses.

 

[JohnK]

Another thing to remember is to check each leg individually for multi-city flights.

BKK-HKG//LHR-ATH-DOH-BKK is 76,000 QFF points and ~AUD465.

BKK-HKG followed by LHR-ATH followed by ATH-DOH-BKK on separate bookings is still 76,000 QFF points but only ~AUD380 in taxes and surcharges.

 

[Mattg]

I just booked an EK award from LCA to MLA using Qantas points. It's a 2.5 hour one-way flight.

The taxes, fees and carrier charges came to $270, of which around $230 was YQ!

 

[ozbeachbabe]

I just booked an EK award from LCA to MLA using Qantas points. It's a 2.5 hour one-way flight.

The taxes, fees and carrier charges came to $270, of which around $230 was YQ!

What was a paid fare? Be interesting to know what Alaska Miles would've cost.

 

[Mattg]

What was a paid fare? Be interesting to know what Alaska Miles would've cost.

This was an F award, so the paid fare would have been ~$2k.

 

[rock86]

I just booked an EK award from LCA to MLA using Qantas points. It's a 2.5 hour one-way flight.

The taxes, fees and carrier charges came to $270, of which around $230 was YQ!

That is ludicrous isn't it, especially when comparing some of its local competitors award programs.

I've just locked in both our US departure & return flight with EK in F - $1,295 each in taxes + carrier surcharges. Of that total EK's YQ (sorry 'carrier surcharge') comes to $1,080 , or the cost of a return economy airfare.

In saying that, there is no way I would ever be able to afford to travel those flights on a paid fare. So while I'd love for the program to reduce or eliminate the 'carrier surcharges', I'm still happy to pay them as it provides me with a way of travelling in a premium cabin for the price I would have paid for an economy ticket anyhow (especially how easy and very cheap it is to accumulate QFF points - which is an entirely different discussion).

 

[JohnK]

We criticise Qantas for these outrageous charges but no mention of Virgin.

Unless I'm doing something wrong the taxes on a SYD-HKG award are ~$155 which is close to what Qantas are charging. When did this change?

 

[Must...Fly!]

We criticise Qantas for these outrageous charges but no mention of Virgin.

Unless I'm doing something wrong the taxes on a SYD-HKG award are ~$155 which is close to what Qantas are charging. When did this change?

Jan 1 sadly.

 

[Mattg]

Virgin's charges are still far lower than Qantas' on the vast majority of routes that they both fly. To HKG they are about the same as Qantas' charges happen to be a bit lower on this route. The only route I'm aware of where Virgin has higher carrier charges is BNE-POM.

 

[JohnK]

My eyeballs almost popped out.

Economy award BKK-SIN-BNE on 3K-EK for 3 people is 84,000 QFF points + THB20,745 or ~$933! SQ is 84,000 KrisFlyer miles + ~THB5,100.

How can the surcharges be that high? The same Qantas award BNE-SIN-BKK is ~$480.

 

[trippin_the_rift]

I'm going to provide [my perspective] insight as to why some airline fees on award tickets are high compared to other carriers.

Note:
I don't work for Qantas, although, I have run the Loyalty Program for a well-known international airline.
This insight is simply about providing you all with a greater understanding of how the points economy operates so you can have a greater appreciation of why airlines price award seats differently, and why you might have different award availability than other loyalty members.
Nothing here is confidential - nor is it a complete picture. All points/miles/costs below are hypothetical for illustration purposes.

First up - we can't talk about the cost of redemptions without the following:

• Qantas classic award chart points cost has remained largely unchanged for most flight redemptions since 2005
• Interchange in Australia is being regulated down, and that has put pressure on all frequent flyer programs to reduce the cost per mile/point being sold to banks [Earn Rate]
• Airlines charge each other for award inventory, and this includes charging their own loyalty program for seats [Burn Rate]

The Qantas redemption table is more or less the same cost in points since 2005. That's 14 years of no points price increases. I can't think of any other product or service in my life which hasn't increased in price over that timeframe. Costs for Qantas have gone up (according to annual reports), although CASK hasn't changed a great deal, due to efficiencies, newer aircraft etc.

The point is - costs go up - but classic award points costs are steady. Does something have to give?

Earning
All points are sold to airline partner at different prices. Some are sold at a premium (generally a low-volume merchant), and others are sold at very low cost. Some deals have other commercial aspects where points might be sold at very low cost, but that company has an obligation to transact $x/Million a year with another area of the airline. There are even scenarios where points can be sold/issued at no cost because those points generated to fit into a larger picture which drives another part of the Group economics. Fundamentally - the average revenue per point YOUR frequent flyer account accumulates at may be different to the next member.

With the above in mind - consider your own scenario:
- How many points did you earn from flying with the host airline?
- How many points did you earn from flying with an Alliance partner?
- How many points did you earn from shopping partners?
- How many points did you earn from credit card spend?
- How many points did you earn from credit card sign-up bonuses?
- How many points did you earn from hotels, car rental etc?

For simplicity - assume your average point was created at $0.05. Your friends account average point might be around $0.04.

When you redeem your points [for anything - since every redemption has a cost] - the cost in points is a flat rate, but the underlying revenue generated from each point is not static. So the 50,000 points airline ticket will cost the Loyalty program $X, and the margin realised on that redemption (which is additional realised revenue after you take the flight), would be less for your friend, than your own account.

It is possible, and very real that the points cost on a redemption does not cover what the airline has to pay for that ticket.
For example, if the above 50,000 points airline ticket costs the airline $3,000 to buy that seat, that translates into $0.06 per point.
Charging the member an award booking fee and other costs allows the program to recover more revenue without changing the headline points pricing.

Your account:
Award ticket cost to loyalty program = $3,000
Your 50,000 points earned at $0.05 = $2,500
Fees & Charges: $500
Net position: $0

Your friend's account:
Award ticket cost to loyalty program = $3,000
Your 50,000 points earned at $0.04 = $2,000
Fees & Charges: $500
Net position: -$500

Interchange Impact
In the USA for example - banks buy airline miles at 2-3x the cost of what banks pay in Australia. [Read between the lines in SEC filings and annual reports]

This means, the US loyalty programs have more margin to play with on the redemption side, which is why it costs fewer miles to redeem with US carriers. Additionally, US loyalty program members have virtually unlimited miles available, which means the loyalty program can negotiate more favourable terms with airlines which they buy award inventory from. Buy more flights = get bigger discounts.

Consider the same above scenario if points were sold at 3x the rate to banks in Australia:

Your account:
Award ticket cost to loyalty program = $3,000
Your 50,000 points earned at $0.15 = $7,500
Fees & Charges: $500
Net position: +$5,000

You can see that the US loyalty programs don't need to charge as many miles for award tickets.

This is why, as a consumer, you will get the best deal if:

• The loyalty program you earn points with has no interchange regulations in their home country, thus greater revenue per point [which generally translates into lower points on redemption]
• Your loyalty program has high volumes of redemptions, thus driving cost down for the loyalty program
• The host airline of the program has excess capacity and needs to fill the seat, thus reducing the cost of seats to own member base
• High consumer credit card debt, leading to greater bank revenue (regulatory authorities want fewer rewards so that those unable to repay in full are not subsidizing those who do, which actually works in reverse, where banks reward ALL consumers less, and increased margins contribute to higher bank profits)

This two-minute rundown and doesn't come close to covering everything or the structure of loyalty programs, cross-charging, how analytics pieces everything together etc. It also doesn't take into consideration other factors, such as:

• CLTV (lifetime customer value)
• CFR (predicted future revenue)
• Predicted Member Outcomes (propensity for the member to xx_xx_)
• Airline ticket sales (how much you're spending with the host airline on revenue tickets)
• Airline Ticket Spend Attribution (do you buy for your family, company etc)
• Breakage (expiring points)
• Cash position of the host airline (willingness for long term loyalty or short term cash)
• Alliance and partner network (commercial structure, alliance compliance requirements)
• Management buy-in (For example One Airline CEO has publically said you're better off with a 2% cashback card than with their own airline co-brand card)
• Government and regulatory constraints (do loyalty programs want to be more transparent?)
• Brand and market strength (what will the market bare)
• Revenue Management (are award seats controlled by RM, or Loyalty RM - are they dynamically controlled?)
• Much much much more...

All of which greatly affect the loyalty program dynamics and economics, which - translate into how the loyalty program can reward members.

 

[Mattg]

All very valid points @trippin_the_rift

I just wish Qantas would at least be more transparent about the charges. They should publish a list of carrier charges on their website, and you should be able to see online how much the fees & taxes on an award booking will be without needing to have enough points in your account to cover the award. There may be good reasons for them to charge these, but the average consumer should be able to know (easily) what they are!

As it stands, the vast majority of QFF members would have no idea how high Qantas' carrier charges are until they get to the payment page on their award booking - after having spent months or even years accumulating the points.

 

[trippin_the_rift]

All very valid points @trippin_the_rift

I just wish Qantas would at least be more transparent about the charges. They should publish a list of carrier charges on their website, and you should be able to see online how much the fees & taxes on an award booking will be without needing to have enough points in your account to cover the award. There may be good reasons for them to charge these, but the average consumer should be able to know (easily) what they are!

As it stands, the vast majority of QFF members would have no idea how high Qantas' carrier charges are until they get to the payment page on their award booking - after having spent months or even years accumulating the points.

Consider it this way - QF may have to charge more points if the cash component wasn't there to offset it. Look at SQ last year - increased miles and decreased cash. That move would have had [some] impact on multiple areas of their business.

Obviously, I can't speak for Qantas, however, the costs QF incur to buy that award inventory are different to those which other airlines have.

Being any more transparent than what they do now could jeopardize their commercial operation. I mean, QF isn't about to come out and break down every associated cost with an award ticket. They already split out YR and YQ which is about as good as any other airline will.

You can, however, get an idea from the annual report which state QF Loyalty as a business operates on ~23% margin. Note that QF Loyalty (like every airline loyalty program in the world) is under IFRS15 which makes it even more opaque. Fortunately, QF L report billings

 

[Mattg]

Being any more transparent than what they do now could jeopardize their commercial operation. I mean, QF isn't about to come out and break down every associated cost with an award ticket. They already split out YR and YQ which is about as good as any other airline will.

I'm not saying they should have to reveal commercially sensitive information. Just make it easier for Qantas Frequent Flyer members to find out how much they'll have to pay in surcharges when redeeming points. I think customers have a right to know this, even if they don't yet have enough points to cover the award.

How does this jeopardise their commercial operation?

 

[kamchatsky]

An Interesting data point here, I have just redeemed the following using QFF points:

- 4 * PE CX157 HKG-BNE for 210000 points + 3656HKD/654.83AUD (or $163.7AUD pp)
- 4 * J QF118 HKG-SYD for 240000 points + $2632HKD/471.42AUD (or $117.855AUD pp)

Note that I have 2 children in booking so it does bring the cash component down for 4 people. But I was surprised with the QF118 booking that the surcharge is much lower than I expected.