Qantas rolls out Classic Plus Flight Rewards

[SYD]

It's relatively easy to understand.

When an airline has a sale on cash fares, the cheapest sale fares often completely sell out, and very quickly on popular dates.

What Qantas has done with CR+ is to allow you to purchase airfares from the cheapest buckets using points. They have not sold out, pretty much on any route for any period despite being available for many weeks now.

Imagine, hypothetically, that Qantas set the CR+ redemption levels at 2c/pt for Y and 4c/pt for J. Do you think we'd have any CR+ fare buckets left? No — they would have gone in minutes.

The market has spoken. They are not buying at this price, at least in any significant quantities.

That suggests we're back at square one — everyone is still chasing the elusive classic awards and frustration with the system will continue to grow.

Another way to put it. Qantas allows you to buy any seat with P+P. Did that reduce the frustration with the Qantas points ecosystem? Not one bit.

C+ may be going down the same path.

That’s not quite right either. If you look closely, where the Sale fares are selling out you can still get CR+ at the ”Saver” fare bucket and there’s a lot more of those seats which obfuscates how many CR+ are being bought. I’d imagine a lot More than you might think.

For example, random date. SYD-HKG direct, Sale fare exhausted but CR+ still available for ”Saver” J. But Sale fare via MEL still available, along with cheaper CR+.

 

[levelnine]

Way to cherry pick my reply.

And, again, you are not the target market. Quite frankly, if CR+ operated the way you seem to think they should, they would be an unmitigated disaster for QFF.

We get it. We know you're unhappy with CR+. But it begs the question, what are you going to do about your displeasure? Are you going to leave QFF? Absolutely your choice. Are you going to continue to allow QFF to extract additional revenue from you, all the while complaining about how unfair it all is? Probably, would by my guess. Maybe you should apply for a job in QFF and explain how to do this better than they have? I'm sure you'll be taken as seriously as you deserve.

You have completely misunderstood my commentary. I'm not speaking about this as a customer. I am not displeased in the program. I am not complaining about how unfair it is. Point me to where I made any indication that I am displeased or think it is unfair?

I'm speaking about this as someone interested in loyalty programs and their successes and failures. I am merely observing that this one is looking more like a failure than a success.

And unfortunately for Qantas Loyalty, they wouldn't be able to afford me .

Now on to someone interested in discussing the merits of the program ...

I see what you mean, but I'm not sure if I entirely agree.

If the sale fare at the currently available fare bucket was indeed so good, then it would've been sold out very quickly regardless of CR+, as people would just buy it with cash.

That's assuming they kept the C+ redemption values at 1-1.5c/pt. If Qantas set them higher, they might have more takers.

To give a numerical example. Your typical J class award fare to the US is about $10K when not on sale and about $7K when on sale.

On the current C+ rates, that equates to about $1000 in carrier charges plus 400K to 600K in points.

If they had set C+ rates at, say, 2c/pt for J, that would reduce to $1000 plus 300K to 450K in points on C+. On this second example, you're going to get way more takers without affecting the cash price (and therefore the number of people scooping up those fare buckets using cash).

Also if the seats are immediately getting sold out, then you could also argue that CR+ is a failure because many people will struggle to get access to these reward seats, which is the issue they're trying to fix in the first place.

Obviously for those of us without 7 digit points balances who are looking for a significant increase in value over cash fares in premium cabins, this doesn't achieve that.

If all of the C+ seats were immediately sold out, it's hard to see it as a failure. 20 million seats at even 25K per seat is 500 billion points used. That's likely more than the entire number of Qantas points in circulation. No one would be able to complain about not being able to use their points because everyone would have used them.

 

[Gremlin]

I'm speaking about this as someone interested in loyalty programs and their successes and failures. I am merely observing that this one is looking more like a failure than a success.

Only on the metrics you've decided are the ones that should measure success.

o give a numerical example. Your typical J class award fare to the US is about $10K when not on sale and about $7K when on sale.

On the current C+ rates, that equates to about $1000 in carrier charges plus 400K to 600K in points.

If they had set C+ rates at, say, 2c/pt for J, that would reduce to $1000 plus 300K to 450K in points on C+. On this second example, you're going to get way more takers without affecting the cash price (and therefore the number of people scooping up those fare buckets using cash).

But this will very much affect the overall profitability of the program. AND the profitability of the airline itself. Utilisation, reward pricing, cash pricing and profitability are not independent. I'd hazard a guess that profitability is a measure of success that most people who run loyalty programs consider more important than you.

If all of the C+ seats were immediately sold out, it's hard to see it is a failure. 20 million seats at even 50K per seat is 500 billion points used. That's likely more than the entire number of Qantas points in circulation. No one would be able to complain about not being able to use their points because everyone would have used them.

As someone who works in loyalty, I would say that if your pricing was such that all these CR+ seats sold out "immediately", then you'd have definitely left a lot of money on the table. You might have "succeeded" in clearing your points liability (which, incidentally, no one in the loyalty game would consider a "success"), but at a seriously detrimental short and long term cost.

And unfortunately for Qantas Loyalty, they wouldn't be able to afford me

...and that's probably best for all concerned!

 

[Kangol]

The archetype points whale is not a card churner. It would be a medium-sized business founder. Has the ability to direct somewhat north of a million dollars spend to one airline or another. Accrues a firehose of points through business card spend. Not necessarily a road warrior themselves, but may have several of them working for them. When they fly, almost always at the pointy end of the plane.

Genuinely a lot more valuable to a QF than a road warrior or a DSC-hacking P1.

This proposition finds a home for their points when they want to take the family skiing in Japan or to a summer break to Europe.

You've just described one type of CL that gets their membership without being a politician.

Agree to the details, which is why Qantas offer CL to these people.

However, in my original example, you and I are referring to different types of people.

 

[levelnine]

Only on the metrics you've decided are the ones that should measure success.

Are you saying the purpose of CR+ wasn't to sell more seats? lol

But this will very much affect the overall profitability of the program. AND the profitability of the airline itself. Utilisation, reward pricing, cash pricing and profitability are not independent. I'd hazard a guess that profitability is a measure of success that most people who run loyalty programs consider more important than you.

Profitability is affected in all directions. Sell seats for too few points and you go bust from lack of profit. Sell seats for too many points and you go bust from lack of customers — they go elsewhere with their CC/supermarket/insurance spend.

As someone who works in loyalty, I would say that if your pricing was such that all these CR+ seats sold out "immediately", then you'd have definitely left a lot of money on the table. You might have "succeeded" in clearing your points liability (which, incidentally, no one in the loyalty game would consider a "success"), but at a seriously detrimental short and long term cost.

And if the program moves very little points inventory, it will have failed as well. As someone who works in loyalty, you should know that.

CR+ was meant to facilitate more customer engagement — to facilitate more burning to encourage more earning. If it doesn't facilitate more burning, it will have failed to achieve its stated purpose.

 

[Gremlin]

Are you saying the purpose of CR+ wasn't to sell more seats?

Honestly, and this may not be the answer you're expecting, I'm not sure it is, at least at an individual flight level. In many cases, it creates substitutability, but not additional utilisation of capacity, for a certain group of customers. That substitutability is very attractive to that certain group of customers. And, in comparison to CR, it would be genuine like-for-like substitutability for more of those choosing to redeem.

That drives a couple of things:

• A stickier customer
• A genuinely more high value customer being rewarded than a typical CR redemption
• Where demand warrants, higher cash fares - it impacts the LAST fare sold on the flight, not the incremental fare

Overall, that improves both the margin extraction for both QFF and QF. They could trade some of that off for more bums on seats if the pricing algorithm decided it was warranted, but they need not in order to improve the valuation of the business.

Profitability is affected in all directions. Sell seats for too few points and you go bust from lack of profit. Sell seats for too many points and you go bust from lack of customers — they go elsewhere with their CC/supermarket/insurance spend.

I agree that profitability is affected in all directions. Implicit in your assertion that "this one is looking more like a failure" is that QFF have the balance wrong here, that they are selling these seats for too many points, and will go bust from lack of customers. I disagree with this assertion. A lack of customers doesn't seem particularly high on the list of problems facing QFF. I will very confidently predict that at the next Investor Day presentation, QFF will see above system growth in both membership and points balance.

And if the program moves very little points inventory, it will have failed as well. As someone who works in loyalty, you should know that.

I actually completely disagree with that. There are plenty of very successful loyalty programs that move very little inventory. I would expect someone who is "interested in loyalty programs and their successes and failures" to know this and understand why. Having said that, QFF actually moves a very significant amount of its point inventory and has a relatively small reliance on breakage. In fact, they already did prior to CR+. Unlike some other programs, QFF also control their currency - they can calibrate the movement of points inventory unilaterally. This makes the likelihood of them failing due to moving too little of their points inventory practically zero.

 

[levelnine]

Honestly, and this may not be the answer you're expecting, I'm not sure it is, at least at an individual flight level. In many cases, it creates substitutability, but not additional utilisation of capacity, for a certain group of customers. That substitutability is very attractive to that certain group of customers. And, in comparison to CR, it would be genuine like-for-like substitutability for more of those choosing to redeem.

That logic only works in Qantas' favour if the value proposition is right in the eyes of the customer. The introduction of CR+ has introduced a new fixed value for points into the Qantas ecosystem. That makes it easier for the customer to assess its value against alternative points ecosystems. Indeed, it does precise the opposite of what you suggest — it increases the substitutability of loyalty programs. It has never been easier for a genuinely high value customer to reconsider their options.

A lack of customers doesn't seem particularly high on the list of problems facing QFF. I will very confidently predict that at the next Investor Day presentation, QFF will see above system growth in both membership and points balance.

Who said QFF has a lack of customers? They have a barrage of customers, all wanting to redeem their points at classic award levels. That is what has created the problem that QFF is trying to solve with CR+. The test of success is the number of customers that engage in, and due to, the CR+ program.

I actually completely disagree with that. There are plenty of very successful loyalty programs that move very little inventory. I would expect someone who is "interested in loyalty programs and their successes and failures" to know this and understand why. Having said that, QFF actually moves a very significant amount of its point inventory and has a relatively small reliance on breakage. In fact, they already did prior to CR+. Unlike some other programs, QFF also control their currency - they can calibrate the movement of points inventory unilaterally. This makes the likelihood of them failing due to moving too little of their points inventory practically zero.

Who is talking about all loyalty programs? No one in this thread — well except for you. The actual subject of discussion — Qantas' loyalty program — has been set up in a way that requires it to move a lot of points to remain profitable. Indeed, if it doesn't, it will certainly fail. For every partner it sells Qantas points to, the customer has an alternative — a cash discount, an alternative loyalty point, etc. If those points do not have a release valve that the customer finds attractive as an ongoing proposition, they will switch to that alternative — some quicker than others — to Qantas Loyalty's direct detriment.

 

[Doctore1003]

Calling a major program change a “flop” only a few month into a long term strategy is quite something

Many QFF members I’ve spoken with recently haven’t even heard about it.

Give it time.

We’ll get an initial sense of how Qantas really feel about it on Aug 29 - the next earnings announcement.

 

[levelnine]

Calling a major program change a “flop” only a few month into a long term strategy is quite something

Many QFF members I’ve spoken with recently haven’t even heard about it.

This is absolute poetry lol.

 

[Doctore1003]

This is absolute poetry lol.

You seriously overestimate how quickly the general public acquires knowledge about things.

 

[dairyfloss]

Has anyone yet tried to change an existing CR booking for a C+? I have a DSC 'U' award booking for NZ that I made tentatively for August, but now looking at Feb for this one, instead (forgot I was going to be in NZ in July). There is plentiful C+ business fares available at the point I want, and with the current premium cabin sale, they are better value than my CR booking as well.

Cheers,
Matt.

 

[levelnine]

Has anyone yet tried to change an existing CR booking for a C+? I have a DSC 'U' award booking for NZ that I made tentatively for August, but now looking at Feb for this one, instead (forgot I was going to be in NZ in July). There is plentiful C+ business fares available at the point I want, and with the current premium cabin sale, they are better value than my CR booking as well.

Cheers,
Matt.

It will be a cancel and rebook scenario.

The call centres have no ability to book C+ flights — online only.

 

[dairyfloss]

It will be a cancel and rebook scenario.

The call centres have no ability to book C+ flights — online only.

Ah yes - forgot that handy nuance.... may need to angle for some 'I' fares to be released to 'U' for me, in that case

 

[Gremlin]

For every partner it sells Qantas points to, the customer has an alternative — a cash discount, an alternative loyalty point, etc. If those points do not have a release valve that the customer finds attractive as an ongoing proposition, they will switch to that alternative — some quicker than others — to Qantas Loyalty's direct detriment.

Oh absolutely. I am intimately involved with one of those alternatives. If this, in fact, was happening at any level of scale, my job would be a whole lot easier. But until then, I'll just keep waiting...

 

[Nuffy]

CR+ are perfect for someone like myself (and I think a lot of people in my situation).

I accrue some points every month through basic spending and the good old Bank West FF account, once every 12 months or so I get a new card and get some points to where I've accrued 300k.

That means myself, my better half and the 2 kids can fly return to either Singapore or Hong Kong (still deciding which way to go), and it'll cost about 1200 in taxes etc instead of about 3700. The 2.5k saved pays for heaps for a family.

Sure, it's annoying that you can't (at least at this point) do a mix of CR+ and Classic redemption (can get home from both places with Classic, just not directly there, and the points redemption is almost double to only book 1 way with CR+) but like I say, saves me a heap of cash and actually allows us extra time there.

Personally, I think for the right target audience, like myself, it's a great concept.

 

[33kft]

Personally, I think for the right target audience, like myself, it's a great concept.

The problem with this place is that it will always let perfect be the enemy of good. Booked Y? Premium cabins better value. Booked CR+? CR is better value*. Never mind the fact that you could book anytime without having to camp out a year in advance and your acquisition costs were a couple of hundred bucks in card fees, it will still be seen as subpar.

End of the day you are 100% right. Not paying cash vs paying cash is an easy call in my books, but again the real celebrations are reserved for those who book RTW itineraries in J on partner airlines.

 

[Gremlin]

That logic only works in Qantas' favour if the value proposition is right in the eyes of the customer. The introduction of CR+ has introduced a new fixed value for points into the Qantas ecosystem. That makes it easier for the customer to assess its value against alternative points ecosystems. Indeed, it does precise the opposite of what you suggest — it increases the substitutability of loyalty programs. It has never been easier for a genuinely high value customer to reconsider their options

What you are describing is the behaviour of high utilisation customers. Most high utilisation customers (Points Hacker-types) behave in this manner because they can profitably engage with a loyalty program. Most loyalty programs, including QFF, run at a profit. Therefore, by definition, such customers are actually amongst the lowest value customers of the program.

The vast majority of loyalty customers, including genuine high value customers, don't behave as you've described.

(FWIW, there is some structural movement right now in the relative appeal of alternate points ecosystems, but not for the reasons you are asserting. Much more along Maslow's hierarchy of needs, with cost of living pressures seeing certain demographics shifting more towards higher utilisation of 'cash back' or 'cash off on grocery spend')

 

[levelnine]

What you are describing is the behaviour of high utilisation customers. Most high utilisation customers (Points Hacker-types) behave in this manner because they can profitably engage with a loyalty program. Most loyalty programs, including QFF, run at a profit. Therefore, by definition, such customers are actually amongst the lowest value customers of the program.

The vast majority of loyalty customers, including genuine high value customers, don't behave as you've described.

You are confusing two separate forms of profitability: profitability for the customer and profitability for the loyalty program.

They are not in a direct inverse correlation with each other. The most high utilisation customers may be less profitable than low utilisation customers, but that does not mean they are unprofitable. That is especially the case when you consider their TCV — a high utilisation customer might extract value in particular parts of the program, but that cost may be more than offset by the marginal business they direct into the loyalty program. In other words, Qantas loyalty could be profitable even if it were comprised solely of high utilisation customers. That is especially the case since Qantas controls inventory of its most high value redemptions.

And my point is that the switch to fixed points values makes it far easier for the majority of loyalty customers to work out if the program delivers value for them.

Prior to the introduction of C+, the value of points was a black box for all but the highest utilisation customers. Now it is dead easy. If a company charges a 2% surcharge to use a credit card instead of a debit card/cash and you earn 1pt/$, it doesn't take a PhD in mathematics to know that you are going backwards with C+.

Does that mean every customer will start doing the sums? Of course not. But the easier you make it, the more will do it.

 

[encryptededdy]

But there was already a fixed points value with Points + Pay, wasn't there?

 

[Cloud9]

But there was already a fixed points value with Points + Pay, wasn't there?

Truesay - but at a burn rate that would make it very unappealing for anyone who actually sat for more than 10 seconds and looked at what that redemption value was, some might say.