How Qantas makes more money from frequent flyers than Virgin

Posted: 5 March 2018 8:15 am
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Credit cards, health insurance and Woolworths all play a part.

Qantas and Virgin have both released half-yearly results recently, and that gives us the chance to compare how they're doing on the frequent flyer front. The big lesson? Qantas is getting a lot more cash from its scheme than Virgin does from Velocity.

For passengers, frequent flyer schemes are a great way to score free flights and other bonuses. But for airlines, they're not just a means of generating customer loyalty: they're also a means of making money, by selling points to other companies which offer them. If you're earning airline points from your bank, your bank is paying the airline for them.

Big bucks are involved here. In the second half of 2017, Virgin scored $191.3 million in revenues from Velocity, with underlying earnings of $56.2 million. But that's dwarfed by Qantas Frequent Flyer, which scored $763 million in revenues and $184 million in underlying earnings.

Why such a big difference? One factor is the number of members. Qantas has 12 million people signed up, while Virgin has 8.6 million. However, the key element seems to be that Qantas has been more aggressively pursuing other means for its customers to earn points, diversifying into health insurance and aggressively promoting its own credit card.

That's not just guesswork on my part; it's what the airlines themselves are saying. In its results announcement, Qantas CEO Alan Joyce noted: "Qantas Loyalty performed very well with the Frequent Flyer program at its core, but it's also opening up fresh revenue growth by expanding directly into areas like financial services and health insurance." Qantas also signed 48 new retail partners for its scheme during the half-year, and appears to have finally bedded down a decent relationship with Woolworths, after some unpopular changes to the Woolworths Rewards scheme were reversed.

Meanwhile, Virgin CEO John Borghetti noted that underlying earnings had been impacted "due to Velocity's investment in new business development initiatives that will be launching in the 2019 financial year". In other words, Virgin also wants more ways to get money from its frequent flyer scheme.

One challenge to both players was the change in interchange fees for credit card providers. That resulted in cards offering fewer points, and that means both Qantas and Virgin were selling fewer points. Offering airline-branded credit cards is one way to fix that. According to Qantas, more than 1 billion points have already been earned on its platinum card.

It's worth keeping an eye on how your preferred frequent flyer scheme is performing, if only to avoid an Ansett-style debacle if the entire shebang goes under. I don't think anyone needs to worry on that score right now, but I'll be keen to see what those "new business development initiatives" from Virgin offer up, especially as I'm flying Virgin a fair bit more this year.

Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more. It appears regularly on finder.com.au.

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