Qantas takeover may result in Frequent Flyer scheme sell-off

[wantok]

Indeed. A friend of mine recently mentioned he had a trip to China using CX/QF in J so I suggested he steal some candy. He now has OneWorld Sapphire status for the first time ever.

He is now in PNG this week. PX flights so no OneWorld benefits. But he was complaining about the cost and process for getting a PNG visa so I suggested an APEC card. So he now will be applying as soon as he gets back. He visits PNG at least 3 times a year, as well as some other places where it could come in handy. Just one PNG visit and he has saved more than the cost of the card.


Until I told him of these things he had no idea other existed.

The only thing with the APEC card is that a visa is still required to be purchased on arrival in PNG as there is no set period given to ABTC holders. Dont actually recall the "priority" lane at Jacksons either, but they have been talking about it.

If your friend travelled on the codeshare service with PX would he not be eligible for status credits?

 

[Kiwi Flyer]

I remember the AFR article about this, suggesting that the third party would be a trust, with the aim to extract some value from the sale to reduce the cost of the takeover.

Apparently Air Canada did this (Texas Pacific Group again). Has anyone any experience of how it works with Air Canada?

Yes Air Canada sold off Aeroplan for a very significant sum. AFAIK there was no significant devaluation of the Aeroplan program following the sale, indeed some benefits have actually improved in recent times.

From a member perspective there is no difference between AC running Aeroplan and it being separate. Theoretically there are advantages to the member of it being separate in that the plan won't automatically fail if the airline fails (Aeroplan could switch to another home airline if needed).

 

[tanewi]

Qantas knows the value of their outstanding FF points in the market and would have this somewhere in their liabilities I assume.


Mal==> Not sure if Qantas does have the liability anywhere. My understanding is that there is no legal liability to honour the points. They can disband or downsize the scheme whenever they want. Given that, there is (as per my understanding) no requirement to recognise any liability for QFF points.

QFF "liability" is different to the liability to pay suppliers, staff, tax man etc., in this case the whole "liability" can be eliminated without any legal recourse (by us)

 

[serfty]

... QFF "liability" is different to the liability to pay suppliers, staff, tax man etc., in this case the whole "liability" can be eliminated without any legal recourse (by us)

Sure, but only if they find a way not to alienate the multitude of corporates who have 100's of millions of annual travel budgets to disburse.

 

[Kiwi Flyer]

Qantas knows the value of their outstanding FF points in the market and would have this somewhere in their liabilities I assume.


Mal==> Not sure if Qantas does have the liability anywhere. My understanding is that there is no legal liability to honour the points. They can disband or downsize the scheme whenever they want. Given that, there is (as per my understanding) no requirement to recognise any liability for QFF points.

QFF "liability" is different to the liability to pay suppliers, staff, tax man etc., in this case the whole "liability" can be eliminated without any legal recourse (by us)

You can have a liability even if you have the ability to provide nothing in some circumstances.

 

[simongr]

I would expect the FF point liability to be some form of contingent liability - in that it is reasonably forseeable that the liability will crystallise. Unless qhen preparing their accounts QF determined that the liability wouldnt crystallise (i.e. that they didnt expect to honour the settlement). Also the provision wold be at net present value of the cost of service provision. QF could argue that there is no cost of providing FF seats on flights as the marginal cost of extar passengers is minimal compared to the fixed cost of the flight. Given that QF restrict the number of FF seats per seat to be a very small proportion of total seats, this reinforces the view that the liability might be small.

So given:

- NPV of future liability
- Expiration rate of points (people with small balances lose points, people with very large balances dont have time to use them)
- Cost to QF of providing service is low

The value of the provision might in fact be quite low.

The actual policy is

(U) FREQUENT FLYER
The Qantas Group receives revenue from the sale to third parties of rights
to have Qantas award points allocated to members of the Qantas Frequent
Flyer Program. This revenue is deferred (net of points which it is considered
will not be redeemed) and recognised in the Income Statement as net
passenger revenue when the points are redeemed and passengers uplifted.
Revenue in relation to points which it is considered will not be redeemed
are recognised as net passenger revenue on the sale of the points.
Members of the Qantas Frequent Flyer Program also accumulate points by
travelling on qualifying Qantas and partner airline services. The obligation
to provide travel rewards to members arising from these points is provided
as points are accumulated, net of estimated points that will expire. The
provision is based on the present value of the expected incremental direct
cost (being the cost of meals and passenger expenses) of providing the
travel rewards based on the forecasted weighted average cost of the reward
mix i.e. redemptions on Qantas services and on non-airline or other member
airlines. The provision is reduced to the extent surcharges and recoveries are
made and as members redeem awards or their entitlements expire. Changes
in cost estimates, breakage assumptions and passenger recoveries could
have a material impact on the fi nancial statements of Qantas.