Upgrades? Pffttt

[serfty]

I guess much of this may be moot by the end of next year; unless Qantas decide to restrict the inferred anytime redemptions to the back of the b*s!

 

[NM]

People are accumulating FF points at an alarming rate and yet they are unable to spend them how they want but rather how the airline wants them spent.

I think you will find that Qantas is about to address that "problem" with a few FF program enhancements. They will soon be able to spend their "hard earned" FF points on any available seat, thus solving the member's dilemma and maintaining the airline's shareholder value. Its just that the number of FF points required for a certain award flight is likely to be the trade-off in this win/win situation.

 

[JohnK]

Its just that the number of FF points required for a certain award flight is likely to be the trade-off in this win/win situation.

That sounds like a good solution if you are able to spend your FF points, albeit at premium redemption award rates, for an award seat when all award seats for that flight have been taken but there are still empty revenue seats.

But not a good solution if at the same time ordinary award seats, like SYD-MEL, are increased from 8,000 FF points to 10,000 FF points.

 

[serfty]

... for an award seat when all award seats for that flight have been taken but there are still empty revenue seats.

But not a good solution if at the same time ordinary award seats, like SYD-MEL, are increased from 8,000 FF points to 10,000 FF points.

Who's to say 'award seats' will continue to exist in their current form (although I don't think it's likely to change that much).

We will know soon enough, no doubt ... :-|

 

[Travel Guru]

I would have thought they would be reported as a financial liability just like any other operational liability such as annual leave accruals etc.

TG

 

[poppet]

I think there is a general lack of understanding amongst not so frequent 'frequent flyers' about how to get an upgrade and how Qantas allocates them. Time and time again I have to explain to colleagues who have earned their ff points on amex cards etc and have enough points for an upgrade that it's not as simple as having enough points. Fortunately I have studied this site and know the rules and as I can't afford to pay business class I will happily pay for a cheap economy seat and then try to work out the best available seat on the plane to sit on. I agree with qantas's upgrade allocation method as I would like to think that if I was platinum ff I would be looked after to.

 

[simongr]

I would have thought they would be reported as a financial liability just like any other operational liability such as annual leave accruals etc.

TG

They are - but it is the method of calculation that is key. For example a business does not accrue for long service leave on a simple pro-rata basis - it is based on the the estimate of how many people will make to 10 years so that they can take long service leave. If you are in a very high turnover business you might not expect any staff to make it to 10 years so never hold a liability.

For QF the liability only crystallises when a booking is made. Prior to that point there is a level of uncertainty about whether or not a liability exists.

 

[JohnK]

Who's to say 'award seats' will continue to exist in their current form (although I don't think it's likely to change that much).

That would be a major enhancement and I am not sure that the environment calls for such moves from QF. Again as you say time will tell....

 

[PPW]

Maybe putting all passengers with babies at the rear of the plane is an idea and imposing an age limit for business and first class.

I can understand that some people might get frustrated by crying babies but to be honest, in many cases, the parents are probably ten times more frustrated!

I think the notion of an age limit for J, etc. is ridiculous! Mrs PPW & I have flown intl J with PPW Jr (3yo) and he is far better behaved than some of the other 40 y.o+ J pax... And in many cases, he is far more polite... at least he says please and thank you to the FAs, which is something that a rude pax on our last trip to HKG couldn't manage! I actually think he was jealous of the attention the FAs gave PPW Jr...

I am always considerate of other pax, but at the end of the day, I am paying for an entire extra J airfare, so PPW Jr has just as much of a right to be there as any other paying pax! IMHO, to suggest otherwise is foolish. Plus, such a policy might be in breach of section 28 of the Age Discrimination Act 2004 (Cth).

 

[Travel Guru]

I have to agree with you there PPW, if you're paying for a ticket, your child has just as much right to be in J, or F for that matter as anyone else.

I think missanalytical's suggestion that just because she paid for a slightly higher ticket (albeit $168) she should have been seated away from the children (thus allowing another unfortunate passenger to take her place) is ridiculous.


TG

 

[Alanslegal]

I'd think that their record profit would suggest otherwise Happy, but that's just my opinion.
TG

just an eg. used 30k qff points for award redepmtion syd-hkt....i get QF number on a JQ operated flight..... surprise surprise, no meal included in my award redemption..........i can see some cost savings of (say) $20 there..... im sure there are many pax who have made award redemption with QF only to be placed onto a less serviced JQ flight ie no food, no blankets!

 

[Platy]

The load factor calculations will include all paid tickets (include things like ID90 staff travel tickets) and FF awards...I think its quite a bit more complicated than you make out. The load factor does not take into account the actual fares paid.

Yes, you are right, it is more complex than that, indeed it is a nice little example of a complex system with inter-dependent variables. For business class, (in domestic J) the loadings aren't necessarily at 80%, since this figure is an average across both cabins. The J class revenue outstrips the Y revenue for a given seat.

But the management yield model will still have its limitations - I doubt, for example, that it attempts to quantify customer satisfaction levels (ie. negative feedback loop to lowering number of U class tickets), or other relevant human factors, but of course I could be wrong.

Just because something seems to be working or makes an apparently good return (profit) doesn't necesarily mean that it is has been optimised, or at least cannot be altered for better returns and customer satisfaction.

 

[Platy]

This article was on the internet and freely in the public domain during the discussions about the failed private equity takeover. It provides many interesting insights, but also raises many questions. The highlights are my own.

The interests of airline and frequent flyer may not necessarily overlap - in fact my personal reading of the article suggests it is in the airline's interests to limit award redemptions and upgrades due to the way revenue and liability are accounted for - others may disagree, however...

Some of the points made below may be reflected in the upcoming changes to the QF FF scheme...



Loyalty program may be worth $2bn
JAMES HALL
14 December 2006

FREQUENT FLYERS QANTAS ON THE BLOCK
The Macquarie Bank-led consortium planning a private equity buy-out of Qantas will review ownership of the airline's Frequent Flyer scheme before a potential sale, valuing the loyalty program at as much as $2 billion.
The plan - modelled on Air Canada's separately listed Aeroplan scheme - could result in Frequent Flyer becoming a stand-alone financial services business responsible for managing hundreds of millions of dollars a year in revenue.

The Frequent Flyer program is the most lucrative sell-off option available, and it's understood the buying group will complete a review of the business within 18 months if it succeeds. Other likely asset sales include Qantas's catering and holiday units.

A stand-alone Frequent Flyer business would have a mandate to expand by selling broader loyalty and financial services products and other marketing products, drawing on its database of more than 4.6 million members.
However, Deutsche Bank analyst Jason Bloom said that while separating the Frequent Flyer business made sense in theory, it could prove extremely complex in practice.

"It's incredibly complicated," Mr Bloom said.
"On the one hand, you have a huge and loyal customer base that you can access, but on the other there is this huge potential liability of points."
At present, Qantas generates revenue by selling Frequent Flyer points to more than 140 program partners such as credit card issuers and hotels that offer them as incentives to their own customers.

Since the introduction of the Australian equivalent of international financial reporting standards (AIFRS) in 2005-06, the only revenue Qantas recognises immediately relates to the share of these points it considers holders will never redeem.

The rest it defers, booking it as revenue only when passengers "spend" the points and recognising it as a liability that, according to Qantas annual report for 2005-06, was just short of $1 billion when it switched to AIFRS.
As long as Qantas owns Frequent Flyer and the plan keeps growing, this liability never crystallises. But if Qantas were to spin off Frequent Flyer, it would have to recognise the liability against its bottom line.

JPMorgan analyst Matt Crowe said while this would not go down well with shareholders focused on short-term returns, it wouldn't matter to private equity owners.

"It's just a big accounting hit," Mr Crowe said, while private equity firms care only about cash generation - which Frequent Flyer could do better outside Qantas.

"The real potential value is that the Frequent Flyer program can also use the points to sell other products. And provided they can create a spread between what they pay Qantas for them and what they sell them for, they should do OK," Mr Crowe said.

"And the thing is, an airline might not be the best business to do that."
An analyst with Canadian investment group Wellington West who covers Aeroplan, Wui-Seng Kon, said that cash was certainly king when the separation of a loyalty scheme took place.

"The main advantage is you can see the cash," Mr Kon said. "Right now it's under the airline: you can't see the cash and you can't see how profitable the entity is. I'm surprised it's taken [other airlines] so long to think of doing this, because Aeroplan has been listed for a year now.

"And when people started realising how much cash the business was generating over the past few months, the share price really started moving."
Indeed, after issue at $C10 ($11) a share in June 2005, stock in Aeroplan Income Fund is trading in record territory above $C17 a share.

He said Aeroplan - with more than 5 million members - was issuing more miles every year, as spending on air travel increased and the use of credit cards and other financial products through which customers earned points grew.
Aeroplan was beginning to generate new revenue by selling products derived from its enormous database of consumers.

Some observers consider ACE Aviation Holdings, the Toronto-listed parent of Air Canada and Aeroplan - each of which are also separately listed - to be the model on which Macquarie might build a new Qantas focused on global alliances.

While Air Canada is a pure airline business and Aeroplan a pure loyalty and marketing business, ACE Aviation is bulking up its services arm, last week agreeing to buy 80 per cent of El Salvadorean maintenance company Grupo TACA Holdings for $US44.7 million ($56.7 million).

Mr Kon believes Aeroplan might even consider Frequent Flyer an attractive investment, while Qantas chief executive Geoff Dixon has made no secret of his desire to form closer links with other airlines.

ACE still owns a 6 per cent stake in US Airways - which itself emerged from bankruptcy protection in 2005, thanks in part to a $US200 million investment by Texas Pacific Group.

Another member of Macquarie's consortium, Onex, also has links to Air Canada, having attempted and failed in 1999 to buy both it and Canadian Airlines, then merge them.

However Air Canada bought Canadian Airlines anyway, in 2001. Butler Caroye principal consultant Tony O'Connor, whose company consults on corporate travel, said this kind of global consolidation was likely to be at the heart of the grand plan for Qantas - whether the Macquarie consortium bought it or not.

But turning Frequent Flyer into a separate company could be problematic.
"The minute there's some sort of glass wall between the Frequent Flyer business and the airline you have diverging interests, because all the airline wants to do is minimise the number of Frequent Flyer seats it gives away so it can give them to paying passengers instead," he said.
"If I'm an airline, it's in my interest to choke off supply."
.

 

[Happy Dude]

I'd think that their record profit would suggest otherwise Happy, but that's just my opinion.

I think it's very good business practice to keep seats free both for last minute bookings and to maintain the cabin value....remember, don't confuse what would be in the passengers best interest with good business practice, they are two different things.

TG

Perhaps their record profit has more to do with a virtual monopoly on a government-protected route?

Why can't the upgrade be granted at the departure gate, after last minute booking opportunities have been exhausted?

Surely if the passengers best interest and good business practice are two different things, then the end result is unhappy customers or a failing business.

I very much doubt that you would complain to the chief cabin dude if the J cabin was full of paying passengers and your $10k experience was, in your opinion, devalued. So why does it matter if the passengers are there via a gazetted upgrade system?

 

[simongr]

I very much doubt that you would complain to the chief cabin dude if the J cabin was full of paying passengers and your $10k experience was, in your opinion, devalued. So why does it matter if the passengers are there via a gazetted upgrade system?

I think the cabin protection for J is not about preserving it for exclusivity and giving J pax more space - if so they wouldnt fill it on any flight. It is about protecting the revenue. If you have more assurance regarding upgrades or more opportunities to upgrade then you are more likely to book in whY and upgrade. This then becomes self-fulfilling as a proportion of passengers dont book J hoping for an upgrade and then because they have not booked there are in fact empty seats - thus a $8k seat becomes a $2K seat.

By extrapolating your argument - why don't they allow paid or points upgrade on board? Or mid-way through the flight if you dont like your seat buddy?

I actually like the current system - as I have said before I have managed to get my upgrades so I don't see a problem with it.

 

[Travel Guru]

By extrapolating your argument - why don't they allow paid or points upgrade on board? Or mid-way through the flight if you dont like your seat buddy?

Too funny Simongr....though no doubt you're not the first to put forth the suggestion! LOL


TG

 

[dajop]

I would have thought they would be reported as a financial liability just like any other operational liability such as annual leave accruals etc.

TG

Well all us ex Global Rewards members know how much of a liability GR points were when AN went bust. We were the most unsecured of all unsecured creditors.

 

[simongr]

I would have thought they would be reported as a financial liability just like any other operational liability such as annual leave accruals etc.

TG

OK - I have done a little research on the accounting policies for this. There are two elements to consider in this - points earned from flying and points sold to third parties (CC companies).

The key one for us is the flying points. Qantas believe that their service provided when the pax earns the points and only needs to provide for the incremental cost of service rather than the provision of a seat. What QF are saying is that it doesnt cost them anything to give you a seat on the aircraft other than food and drink - given that you pay fuel surcharges and taxes when you make the booking and these might in fact be above the marginal fuel cost of the pax geting on board then the actual cost of getting you airborne is small.

The logic is that QF only release a certain number of FF seats. In calculating how many seats to release they factor in how many seats are likely to be unsold anyway - so by giving you a FF seat they are in fact giving you a seat for which they already know they will not receive any revenue.

This is further supported by the release of FF seats close to departure - they are releasing seats for which they expect to receive no revenue so there is no cost to them for giving you the seat.

 

[Ric]

Food for thought......
Do we seriously and realistically think that QF staff have no way of manipulating the allocation system to get them a J class seat confirmed on discount staff travel ahead of points upgrade requests?? A matter of you scratch my back, I scratch yours?:shock:
Not saying that they are doing it, but just for discussion sake....

 

[josko]

I was just thinking about an amusing incident that occurred to me some years ago (read...many) when Qantas was much more agreeable and generous with its upgrades....story goes like this!

Arrive MELB airport for cattle class to HK...went to the Q club after checking in and thought....Hmmm might try for an upgrade to J at the Q club operators.

Anyway, asked and Lord behold....GRANTED! Wow...feeling really fuzzy , warm and loved by this stage as I headed for the bar.

About 1hr later.....name called out on the PA....need me to go back to Q operator (feeling rather lucky at that stage...suspected nothing)

Sheepish looking Q operator (same one who bumped me up before) tells me that I have been dumped back to cattle class cause a FULL PAYING customer had just purchased a J class seat........my seat it seems....the last one

Thought to myself...no use in making any sort of scene...the girl is just doing her job and its not her fault so tail in between my legs as I head back to the bar (large sob and tear ducts full by this stage)

Anyway....10 minutes to boarding...and looking forward to having my kness up near my nose for 8 or so hours....another PA announcement calling out my name and requesting my presence back at the Q operators desk

Well, same Q operator as before who tells me that a j class passenger had not checked in and because i was such a good boy (read...didnt crack the s...s before she was again bumping me up from cattle class

Moral of the story......refrain from cracking it at the Q operators and father xmas will look after you!:mrgreen: