Qantas rolls out Classic Plus Flight Rewards

[elanshin]

As pointed out, it's counted as a liability, so that is not what they want.

In an ideal world, they do sell a lot of points, but then ideally customers redeem those points for very low-value things. Basically the opposite of us - we look at point acquisition cost vs point redemption value, and they want the very opposite.

I don't know why there's an aversion to the word "liability". There is good and bad debt for companies. This falls under the "over the moon so good we cant stop smiling" type of debt.

Lets change it into different terms. Lets say its a mortgage now. Instead of paying interest, there is none. Instead of the RBA and banks controlling the rates and principal values, you can arbitrarily change that. Oh and every month a small portion of that debt just evaporates.

Are you not going to want as much of that debt as you can possibly get? The only issue is how you convince people to give you such a deal.

 

[Daver6]

I don't know why there's an aversion to the word "liability". There is good and bad debt for companies. This falls under the "over the moon so good we cant stop smiling" type of debt.

Lets change it into different terms. Lets say its a mortgage now. Instead of paying interest, there is none. Instead of the RBA and banks controlling the rates and principal values, you can arbitrarily change that. Oh and every month a small portion of that debt just evaporates.

Are you not going to want as much of that debt as you can possibly get? The only issue is how you convince people to give you such a deal.

Liability is an issue as a large liability reduces the valuation of a company. It's the same reason companies don't like having a heap of employees leave on the books.

 

[elanshin]

Liability is an issue as a large liability reduces the valuation of a company. It's the same reason companies don't like having a heap of employees leave on the books.

Thats traditional debt and liability. Anyone with an ounce of financial accounting will see this debt product and say gimme as much as possible. Thats why it's so lucrative globally and there's a race to sell as many points as possible.

Did i mention that if you let the points expire as the consumer the debt just vanishes?

 

[downloadingdata]

Liability is an issue as a large liability reduces the valuation of a company. It's the same reason companies don't like having a heap of employees leave on the books.

All else equal a company with higher debt levels have a higher business / enterprise value. Although, usually the other way to think about it is that for companies with the same business value, the equity value is reduced for companies with a higher debt. As a shareholder you would want some levels or debt, just not excessively so that it compromises the credit quality of the company.

 

[Daver6]

Thats traditional debt and liability. Anyone with an ounce of financial accounting will see this debt product and say gimme as much as possible. Thats why it's so lucrative globally and there's a race to sell as many points as possible.

Did i mention that if you let the points expire as the consumer the debt just vanishes?

All else equal a company with higher debt levels have a higher business / enterprise value. Although, usually the other way to think about it is that for companies with the same business value, the equity value is reduced for companies with a higher debt. As a shareholder you would want some levels or debt, just not excessively so that it compromises the credit quality of the company.

Two scenarios. Two identical airlines but the only difference is one has double the amount of points outstanding than the other. Which company do you think has the higher valuation?

 

[elanshin]

Two scenarios. Two identical airlines but the only difference is one has double the amount of points outstanding than the other. Which company do you think has the higher valuation?

The one with the higher points balance - because they would have equivalent extra in cash or other assets. You don't just gain points liability without an equal gain in cash or other assets. Technically though they would both have similar value by traditional book metrics but one has significantly better debt instrument.

If you have double the points liability but not an equivalent in asset/cash then you have squandered the money given to you so of course that would mean you're in a worse position. But that's failure in other aspects of the business, not the points loyalty division.

 

[Daver6]

Two scenarios. Two identical airlines but the only difference is one has double the amount of points outstanding than the other. Which company do you think has the higher valuation?

The one with the higher points balance - because they would have equivalent extra in cash or other assets. You don't just gain points liability without an equal gain in cash or other assets. Technically though they would both have similar value by traditional book metrics but one has significantly better debt instrument.

If you have double the points liability but not an equivalent in asset/cash then you have squandered the money given to you so of course that would mean you're in a worse position. But that's failure in other aspects of the business, not the points loyalty division.

My bolding.

You're describing a different scenario to what I described though. However, I understand the point you're making in your example plus the general point that the context of the liability is an important consideration.

 

[torks]

Qantas would have two levels of points outstanding. First level is total points accumulated by customers. I've got no idea how much this is but say for example 20 billion.
For there financial statements they would then adjust this by how many they would expect to be redeemed. Once again no idea but say 10 billion. They'd then be valued at cost to redeem, say .5 cents per point, that's a liability of 50 million. In qantas terms nothing.

If they can sell more point but expect no change in redemption rates they can recognise revenue with no resulting liability movement.

 

[levelnine]

The problem for Qantas isn't really any of the above.

The problem for Qantas is that, if this pool of unredeemed points keeps growing because people cannot redeem their points for something they want, these people will eventually stop accumulating them, especially where there is an additional cost to do so (eg by paying a credit card annual fee, by switching from Woolworths dollars to Qantas points, by paying more for a Qantas-branded health insurance policy).

They want points off the books because that means people are redeeming them and therefore engaging with the program. Of course, not all redemptions are created equal from Qantas' perspective. If people are only redeeming points because they've given up on the program and are cashing out before moving elsewhere, then that's bad news for Qantas.

 

[SYD]

The problem for Qantas isn't really any of the above.

The problem for Qantas is that, if this pool of unredeemed points keeps growing because people cannot redeem their points for something they want, these people will eventually stop accumulating them, especially where there is an additional cost to do so (eg by paying a credit card annual fee, by switching from Woolworths dollars to Qantas points, by paying more for a Qantas-branded health insurance policy).

CC fees have been around for decades and haven’t stopped peeps spending big or small. Even 3% international transaction fees on QF and VA earning cards don’t stop that spend…

They want points off the books because that means people are redeeming them and therefore engaging with the program. Of course, not all redemptions are created equal from Qantas' perspective. If people are only redeeming points because they've given up on the program and are cashing out before moving elsewhere, then that's bad news for Qantas.

Or just sucked into CR+ is a good thing… At least most people knew that Any Seat Awards were laughable when presented as a points option…

But normalising dynamic award pricing by stealth via CR+ is problematic.

But not everyone is focused on gaming the points earn and burn game. There are many who do get value from FF status on a day to day basis as “loyal” FFs. Those just churning CCs with no status probably are looking elsewhere but those alternative options are dwindling fast.

 

[levelnine]

CC fees have been around for decades and haven’t stopped peeps spending big or small. Even 3% international transaction fees on QF and VA earning cards don’t stop that spend…

Would you pay 3% for nothing? The point of my post was that people will stop earning if there is nothing worth redeeming. The question is whether CR+ is worth redeeming and, therefore, worth earning in the first place.

Not sure what is the relevance of the rest of the post. Sure, not everyone is focused on earning and burning. But those other people provide next to no growth for Qantas Frequent Flyer either. And QFF is a growth business — a points program that flatlines is a failure.

 

[Kangol]

Sure, not everyone is focused on earning and burning. But those other people provide next to no growth for Qantas Frequent Flyer either. And QFF is a growth business — a points program that flatlines is a failure.

If the revenue behind the points that QFF is selling to merchants is growing, that's really the important part.
If people are slowly accepting the fact that they now need more points for a redemption, in theory there will be more unredeemed points on the balance sheet. This, plus growing revenue into QFF, could occur concurrently. That is a good thing for Qantas.

Do they have specific revenue figures on what QFF earns from selling points to merchants?

Sure, some of the diehard, want to get something for nothing and complain when that changes-type of person may go elsewhere, but that's probably not a relevant consideration anyway.
It'd be interesting to look at the numbers of FFs who redeem classic awards. Safe to say a very high proportion would be at least WP, which are spending enough to QF/QFF anyway.

Inflationary changes have been occurring in all FF programs for a long time now.. yet they are still doing well.

As always, those complaining are the ones who simply don't understand that they've voluntarily subscribed to QFF's game, where they set the rules and change them as they please.
Don't like it? Leave, fly with another carrier, or buy your own plane

 

[RooFlyer]

As always, those complaining are the ones who simply don't understand that they've voluntarily subscribed to QFF's game, where they set the rules and change them as they please.
Don't like it? Leave, fly with another carrier, or buy your own plane

Of course, one thing that has remained unchanged are all those alluring advertisements of scenes of tropical beaches or London or Paris or anywhere around the world and saying how you can take your holiday with points. Some of the punters could be forgiven for thinking that they still mean it.

 

[Kangol]

Of course, one thing that has remained unchanged are all those alluring advertisements of scenes of tropical beaches or London or Paris or anywhere around the world and saying how you can take your holiday with points. Some of the punters could be forgiven for thinking that they still mean it.

I've not looked, but are international Y classic awards scarce? That's what QF are hoping for.

The other part is that loyalty programs are largely designed for the customer to be loyal to the program and not the other way round.

 

[SYD]

Would you pay 3% for nothing?

No…but others do.

The point of my post was that people will stop earning if there is nothing worth redeeming. The question is whether CR+ is worth redeeming and, therefore, worth earning in the first place.

So far not for me and most here until we see J and PE CR+ less than regular CR (which is unlikely in the current high fare environment across the board).

Those cheaper whY CR+ (ie less than CR) have possibly tantalised a few peeps. ie believing a “free” domestic or TT flight is better than nothing.

Not sure what is the relevance of the rest of the post. Sure, not everyone is focused on earning and burning. But those other people provide next to no growth for Qantas Frequent Flyer either. And QFF is a growth business — a points program that flatlines is a failure.

Those people (and there a LOT) who are engaged with QFF holistically - status and perks are probably contributing as much or more to the QF Group bottom line overall - which is the point of loyalty programs.

 

[levelnine]

If the revenue behind the points that QFF is selling to merchants is growing, that's really the important part.
If people are slowly accepting the fact that they now need more points for a redemption, in theory there will be more unredeemed points on the balance sheet. This, plus growing revenue into QFF, could occur concurrently. That is a good thing for Qantas.

Inflationary changes have been occurring in all FF programs for a long time now.. yet they are still doing well.

It's always interesting to read posts that assume Qantas Loyalty is bullet proof and keeps going from strength to strength.

It's particularly interesting when only a page earlier I spelt out that every key metric is currently going backwards. YOY points accumulation growth is down, points redemption growth is down, revenue growth is down, earnings are negative, operating margin is down.

That doesn't mean Qantas Loyalty is doomed or anything remotely of the sort. To the contrary, Qantas Loyalty will continue to grow and remain profitable, especially because Australia is such an uncompetitive market for domestic airlines & loyalty programs.

But it means what they offer to customers still matters.

Those people (and there a LOT) who are engaged with QFF holistically - status and perks are probably contributing as much or more to the QF Group bottom line overall - which is the point of loyalty programs.

Anyone who knows how a business works would know that what happens at the margins are all-important. You might have a loyal customer base that will buy your product no matter what (and Qantas has that in spades), but a business is in big trouble if it cannot attract people at the margins (ie new customers) because (a) the loyal customer base does not provide much growth — it is hard to convince someone only collecting Qantas points and only flying Qantas to spend more with Qantas and (b) that loyal customer base eventually stops consuming the product — that is especially important for Qantas as a huge portion of its customers are boomers who will eventually stop flying for health reasons.

If you look at the younger demographic, they really hate Classic Plus (all separate links). Again, it doesn't mean Qantas is doomed. Far, far from it. But there's very little evidence to say Classic Plus has been some big win — for Qantas or for customers.

Edit: FWIW I think we're about to see a big uptick in Classic Plus redemptions. Once the Classic program devalues later this year, the difference in points price between Classic and Classic Plus is going to significantly diminish. Indeed, Classic Plus will be cheaper than Classic on a regular basis — pretty much whenever there's a sale on cash fares. The big long-term question is whether getting 1-1.5c/pt will excite enough customers to drive new/incremental spend towards Qantas-earning products.