Who Profits when You Earn Points/Miles ❓🤔

[Forg]

If you buy anything from anywhere or via any means that offers “points” when you buy stuff, and you don’t take-up that offer, then you’re effectively paying extra to fund the “points” they give to someone else. So you either swallow that fact & accept it‘s a cost of living life, you get involved in the points scheme (being careful that any membership fees will be made-up for something you would actually have bought otherwise), or you just don’t use/buy the product at all.

If it were possible to buy an airline ticket without paying the extra it costs to provide loyalty points, and put the money you saved aside, you’d be paying less for your flights &/or upgrades in the long run. But the business-model doesn’t allow that, of course.

 

[SOPOOR]

Using my total objective and logical thinking, but have zero expertise in the industry

I have always thought, and will continue to think, unless i hear differenr is that airlines make a killing off this, like gift cards


Airlines sell their points for X cents per point, knowing that
A large proportion of people will let it expire
A large proportion will never had enough to redeem anything (lets say 5000 pts)
A large proportion will redeam it for RRP $60 toaster that you can buy at myer for $40, which will cost something poor value like 10,000 points
A large proportion dont know what to do or cant find the flight they want to spend it on
Only a tiny proportion will ever accumulate 100,000+ points and use it on a business/first flight
Even if you were able to redeem on first class , the only loss to the airline is a few bits of caviar, champagne, and wagyu beef, fuel which might cost $200, and the cost of being able to sell the ticket as cash being as opportunity cost

Ie its a money printer for airlines

 

[33kft]

Even if you were able to redeem on first class , the only loss to the airline is a few bits of caviar, champagne, and wagyu beef, fuel which might cost $200, and the cost of being able to sell the ticket as cash being as opportunity cost

As true as this is, it ignores that corporate accounting is a conservative beast and everything happens for a reason as far as accounting goes - and therefore you are forfeiting the rack rate for these seats, in the same way that QFF attribute all points not sold to partners as being paid by "marketing budget" in the slide above.

What a pain in the proverbial it must be for the GM of marketing to have his cost centre "pay" for every single point unaccounted for by a direct partner purchase of points, and I dare say they have a counterpart elsewhere in that deck in an appropriate cost centre which "owns" the lost yield revenue when seats are unavailable for sale.

Then again, I assume you ultimately want to realise that loss in as comprehensive of a way as possible to offset taxes on revenue.

 

[SOPOOR]

As true as this is, it ignores that corporate accounting is a conservative beast and everything happens for a reason as far as accounting goes - and therefore you are forfeiting the rack rate for these seats, in the same way that QFF attribute all points not sold to partners as being paid by "marketing budget" in the slide above.

What a pain in the proverbial it must be for the GM of marketing to have his cost centre "pay" for every single point unaccounted for by a direct partner purchase of points, and I dare say they have a counterpart elsewhere in that deck in an appropriate cost centre which "owns" the lost yield revenue when seats are unavailable for sale.

Then again, I assume you ultimately want to realise that loss in as comprehensive of a way as possible to offset taxes on revenue.

im not a corporate accountant but if losses are calculated by potential revenue lost, then I can see how airlines are considered making a loss

 

[33kft]

Neither am I which is probably painfully and frustratingly clear to a real corporate accountant, but it would be no different to giving our points in my view. QFF can manufacture points "for free", but they have a cost both in lost revenue and future redemptions. If they weren't accounting for those costs, they would be taxed on everything they made through revenue-generating activity but could not offset that against the "expenses" occurred by crediting points as part of flights, as an example.

As those points come at a cost to QF - both nominal and actual (they wear all the liabilities and responsibilities of those points issued and they ultimately get redeemed) I would expect they would account for those as an expense.

I assume that would be accounted for as partner revenue and not marketing budget, they have enough individual businesses under the corporate umbrella that QF could easily be a "partner" of QFF just as ANZ or AMEX, not to mention QF money, QF wine, QF insurance and all the other BUs who purchase points from QFF.

 

[AustraliaPoochie]

But its the valuable data, that we give WWR and QFF that is valuable to them.
(((If you buy baby products, they know you have a baby, or are involved in the life of a baby/toddler, if you buy cat food/dog food, they know you have a mrs pooch or mr kitty at home, if you buy from BWS, they know you like a tipple, (tho Dan Murphy rewards are a separate affair from WWR), if you buy something from mydeal, they know your interest there too, if you buy something from kogan, they know too...))).
They can also match and mix data, to offer us more offers, or upsell.
Yes, there is a cost to QF/QFF, but in the end, its us who pays.
Think of the interest forgone when we put money into the QP (Qantas pay card), and also the fact that some merchants will add on a small extra charge, for paying by card, for purchases under $10 or by the mere fact we are paying for a purchase with a card, I think newsagencies in Adelaide charge about $0.50 added onto the card, for recharges on the bus card.
Overseas forex fees/conversion fees.
On the true credit card that the banks issue, $395 a year for some QFF points earning credit cards.
Part of it will go to the bank/issue ie, amex, and part will go up the chain to QFF too.
To sum up, they do gain, a lot, more than what they lose on that seat not sold as a rev seat.

 

[Mwenenzi]

QF newsroom 24 Feb 2024 --->https://www.qantasnewsroom.com.au/m...4-supports-continued-investment-in-customers/
Easier to make a profit from selling points than from stuffing self loading cargo into a metal tube

<snip>
QANTAS LOYALTY
Qantas Loyalty expanded significantly during the half, adding more members to reach 15.8 million and adding several major program partners. Value of bookings via Qantas Hotels and Holidays increased by around 30 per cent compared with 1H23; TripADeal bookings grew by more than 60 per cent.

The number of Qantas-branded home and motor insurance policies increased by a factor of 2.5 times compared with 1H23 and financial services continued to grow, with more than 100,000 credit card acquisitions during the half and a 4 per cent increase in the value of purchases on cards earning Qantas Points.

Underlying EBIT grew by 23 per cent compared with 1H23 to reach $270 million. The strong performance in calendar 2023 meant Loyalty achieved its earnings target of $500 million per annum six months ahead of schedule.

The Group is still working to finalise improvements to the Frequent Flyer program that will represent a significant investment for members, with the aim of announcing them by April.
<snip>

 

[equus]

QFF attribute all points not sold to partners as being paid by "marketing budget" in the slide above.

That slide only referred to points being sold to partners (which would include anywhere revenue is earned from points, including QF Wine, Insurance, Hotels etc. and any one else paying for points - which I am sure includes partner airlines). The only marketing references are actually to revenue, not cost.

The only thing sitting on the balance sheet is the revenue received in advance (for points sold), the points themselves do not. When no revenue is received (i.e. points issue by Qantas directly, for flights on QF metal etc) then there is nothing that can realistically be recorded. The accounting occurs when the points are redeemed - there may be some revenue (fuel fines etc.), but mostly cost of the redemption. As there is no segregation of how points were paid for in the first place, some of the overall revenue received in advance is taken as income (in effect, the fair value attributed to each point that makes up that pool is diluted by the points issued without contributing to the pool). Hence "profit" is generated even when points issued by QF for nothing are redeemed.

As profit is taxed (and expenses incurred reduce profit), there is no way that issuing points for nothing would be allowed to generate an expense to reduce profit. Just like a certain portion of the income received from points sold is recognised as revenue received in advance (and held on the balance sheet as such) and not taxable, any future liability for the redemption of points is only a potential future cost - which is not ascertainable. The cost could be nothing (breakage), or very little if the points are devalued by QF at some stage.

The only real gripe about marketing (and within QF), is the shift of profit to Loyalty because of the low "cost" attributed to seats being sold - i.e. Loyalty gets to make the profit, not the flying side. No doubt, in the past, this was appropriate, as the only seats being offered as rewards were those not expected to be sold - so the cost was simply that incremental cost of catering, baggage handling and some fuel). With the growth in the sale of points, I suspect more valuable seats that might have been sold are being included to keep the punters interested, but no doubt only be "purchased" by loyalty at the old low rates. With P+P and CR+, however, where the seats are being purchased based on an effectively fixed conversion rate based on an actual fare - which yield management are expecting to be able to achieve for the seat, there is no logical reason that the flying side should not be receiving that "revenue" from Loyalty. All a bit moot, until and unless someone decides to "sell" the loyalty business (as has been done elsewhere). At that point, opaque internal cost allocation will not be possible, and the value of loyalty that is being spruiked now would be revealed as not necessarily realistic.