When Qantas launched Points Club three years ago, it wanted to encourage people to earn more frequent flyer points on the ground. This has been quite successful. Indeed, it’s now easier than ever to earn lots of Qantas points in Australia through credit cards, shopping, buying fuel, buying wine or even going for a walk – to name just a few ways.

Now, Qantas wants to create more ways for people to redeem their points on the ground as well.

An imbalance between earned and redeemed points

Qantas Frequent Flyer members currently hold a combined total of more than $3 billion worth of unredeemed points. That’s a huge liability for Qantas. And people are currently earning points faster than they’re redeeming them, meaning the stockpile of unused points is growing.

Ultimately, this isn’t sustainable if it continues forever. So, Qantas has flagged in a presentation to investors this week that it plans to get members to spend more of their points.

Over the coming years, Qantas wants to increase the total amount of points redeemed by 7% annually. Qantas also wants to increase the number of points earned by members, but at a slower rate of 6% per annum. By also growing the member base by 3% per yer, Qantas aims to double the annual profit of its loyalty division by 2030.

Although it costs Qantas money when frequent flyers redeem their points, Qantas rightly sees the importance of providing valuable redemption options. This keeps members engaged and motivated to earn more points. If people can’t use their points for rewards they consider to be valuable, they’ll stop caring about the frequent flyer program that makes huge amounts of money for the airline.

How will Qantas increase the rate of points redemptions?

Qantas says it plans to “diversify redemption options delivering more choice for members”. It largely plans to do this by increasing opportunities for members to redeem their points on the ground.

A key part of this strategy is expanding Qantas Hotels and Qantas Holidays. Qantas also aims to increase redemption opportunities with major retailers. This could involve new partnerships, making existing partnerships more attractive, or both.

In addition, the airline plans to grow Qantas Business Rewards and diversify its redemption offering with “smaller, more attainable rewards for more frequent engagement”.

Expanded flight rewards?

Air travel redemptions are still important to both the airline and members. But most of the real growth in coming years is forecast to come from non-airline redemptions.

This trend is already underway. This year, the amount of non-airline redemptions is 48% higher than it was in 2019. That’s compared to a 12% increase in airline redemptions. By 2030, Qantas Frequent Flyer expects to further grow the proportion of points spent on the ground.

Realistically, non-airline rewards are easier to expand at scale because airline rewards require empty seats to be available on aircraft.

The number of physical flights operated by Qantas and its partner airlines is limited. To expand Classic Flight Rewards, either airlines would need to add more flights, release more reward seats per flight, or Qantas Frequent Flyer would need to partner with more airlines.

Qantas said in its investor presentation that it will “enhance” its flight reward proposition. This will involve “continued innovation in expanding [the] flight reward product suite to meet member demand”.

It’s not exactly clear what Qantas means by this, but Qantas could fairly easily expand its “Points Plus Pay” offering where points can be used to book a seat on any flight. This could be what the airline has in mind, as Qantas is now offering 30% off all Points Plus Pay bookings for the entire month of June 2023.

Non-airline rewards aren’t generally the best value

Of course, it’s one thing for Qantas Frequent Flyer to offer more ways to redeem points on the ground. It’s another thing for those redemptions to be good value.

You can already redeem Qantas points for gift cards through Qantas Marketplace, or directly with a sizeable number of third-party retailers including HOYTS, BP and various restaurants. Most AFF members wouldn’t even consider this because the value is poor compared to Classic Flight Rewards or upgrades.

This isn’t surprising when you consider the Qantas Frequent Flyer business model. Qantas needs to make a margin on each point redeemed – that’s how loyalty programs make money. So, the average cost to the airline for each point redeemed needs to be lower than the revenue received for each point.

You can get much better value when redeeming points for flights or upgrades because the marginal cost to the airline providing these rewards is relatively low. If a seat would have otherwise flown empty, it costs the airline little to offer it as a reward seat or upgrade. The airline already has to pay for fixed costs like fuel and pilots, and the passenger still covers the taxes.

The value to the member, though, of a Business Class flight redemption is much higher than the cost incurred by the airline in providing it. So, it’s a win-win.

Airlines make sure they’re only giving away seats they’re unlikely to otherwise sell by controlling the number of reward seats and upgrades available. That’s why you often won’t find Classic Flight Reward seats on popular routes during school holidays.

On the other hand, when the reward is provided by a third-party, the airline can’t give away that kind of value as they’re paying the full monetary value for the reward. For the loyalty program to provide more value on third-party redemptions, it would either need to increase the revenue earned for each point or give up some redemption margin.

This being the case, making non-flying redemptions more compelling could be a challenge.

Qantas can tap into its non-flying businesses

Luckily, Qantas Loyalty has expanded over the years into many other non-flying businesses. For example, you can now redeem points with Qantas Hotels and Qantas Holidays. The airline’s portfolio of businesses also includes Qantas Wine, Qantas Money, Qantas Insurance, and Qantas has acquired a stake in TripADeal.

Qantas can afford to give a bit more value to members redeeming for products and services that it sells directly. That’s simply because it has more margin to work with.

Last year, Qantas Frequent Flyer reduced the cost of hotel and holiday redemptions by 30%. The number of Qantas points redeemed on hotels and holidays is now triple what it was in 2019, making this now the second most popular redemption behind Classic Flight Rewards.

This shows that many Qantas Frequent Flyer members are willing to use their points for non-flight rewards – but only if they see value in it.

Qantas could tap into even more of its non-aviation businesses to offer more rewarding redemptions to members on the ground – without Qantas losing money in the process. High margin products like wine, as well as TripADeal tours, are fair game here.

An opportunity to help other travel businesses

There could even be an opportunity here for Qantas Frequent Flyer to help other travel-related businesses with fixed assets but fluctuating demand to solve a common problem.

Hotels, rail companies and cruise lines have a fixed inventory of rooms or seats that they need to sell – just like airlines. During busy periods, they’ll often be fully booked. But selling all of the available inventory can be harder during off-peak periods.

For example, a hotel can’t simply reduce the number of rooms available during a quiet period, and they still have to cover their fixed costs. They’ll often try to stimulate more demand by discounting rooms. If they’re part of a hotel loyalty program, they might also make rooms available to book using hotel points.

But many hotel, rail and cruise loyalty programs don’t have anywhere near the reach in Australia of Qantas Frequent Flyer. In fact, many independent hotels and motels don’t have a loyalty program at all.

Qantas could let these kinds of businesses offer their distressed inventory (i.e. rooms or seats they won’t otherwise be able to sell for money) to Qantas Frequent Flyer members at attractive redemption rates.

Under such a model, the third-party operators could retain full control over the inventory made available to book with Qantas points and wouldn’t be required to offer availability during busy periods. In return, they may accept a lower price from Qantas than the full retail price – allowing Qantas to pass on the increased value to its members redeeming points.

To an extent (and I don’t know how this works behind the scenes), Classic Rail Rewards already work like this. This is currently one of the best value ways to redeem Qantas points on the ground.

Used at scale, this model could be a win-win. Third-party businesses could earn incremental revenue for distressed inventory at marginal cost. Qantas Frequent Flyer members would have access to more attractive ways to use their points. And Qantas could make its margin in the process, while also adding value to their loyalty program.

Matt Graham

The editor of Australian Frequent Flyer, Matt's passion for travel has taken him to over 90 countries… with the help of frequent flyer points, of course!
Matt's favourite destinations (so far) are Germany, Brazil & Kazakhstan. His interests include aviation, economics & foreign languages, and he has a soft spot for good food and red wine.

You can connect with Matt by posting on the Australian Frequent Flyer community forum and tagging @AFF Editor.