Only 17% of Ansett Global Rewards Members Feared of Airline Bankruptcy

Many former members of the Ansett Global Rewards frequent flyer program still have painful memories of losing their points after Ansett went bankrupt in 2001 (then again in 2002 after a brief resumption of limited flights).

Although there were some limited opportunities to claw back a bit of value from Ansett points after the airline’s collapse, most Global Rewards members lost all of their hard-earned points.

In hindsight, people should have been more concerned about the risk of Ansett collapsing. If they’d known what was coming, most Ansett frequent flyers would have tried harder to use up their points before the airline entered voluntary administration on the 12th of September, 2001.

Of course, it’s easy to say that with the benefit of hindsight. But at the time, most Ansett Global Rewards members were blissfully unaware of the risk of losing their points.

Australian attitudes towards frequent flyer programs in the 1990s

The Ansett Frequent Flyer program, later renamed to Ansett Global Rewards, was originally launched in 1991.

In 1995, William Browne, Rex Toh and Michael Hu published a research study called Frequent-Flier Programs: The Australian Experience in the Transportation Journal (Vol. 35, No. 2, Winter 1995, pp. 35-44). These authors interviewed hundreds of travellers at Sydney Airport over the space of a week to collect data about their membership of, and views about, frequent flyer programs.

At the time, only 25% of respondents – all of whom were flying that day – were even a member of a frequent flyer program. This reflected the fact that frequent flyer programs in the 1990s were squarely aimed at business travellers. 74% of travellers who were not a member of a frequent flyer program said it was because they didn’t fly enough to make it worthwhile paying the $30 joining fee and annual account service fee.

The surveyed travellers who were members of at least one frequent flyer program were asked to rate their level of agreement with a range of statements. One of them was “I am afraid the program I am enrolled in will go bankrupt”.

Only 4% of respondents “agreed strongly” with that statement. And just 17% had any level of concern about the viability of the frequent flyer program.

53% of Australian frequent flyer program members were not concerned about this possibility, while the remainder had no opinion.

The study found that most people were not worried about their airline going bankrupt “primarily because the two major domestic airlines in Australia [were] very strong, a de facto continuation of the Two Airline Policy, although Compass went bankrupt again”.

Even in the years and months immediately prior to Ansett’s collapse, most Global Rewards members were either unconcerned about the possibility of the airline collapsing or took no action to minimise their losses.

Attitudes did change after the September 11 attacks in 2001, when it started to look like Ansett would imminently collapse. There was somewhat of a last-minute run on points at this stage, but it was too late for most people as Ansett entered voluntary administration within a day of this event.

In any case, Star Alliance did not honour most award tickets booked for travel on alliance partners using Global Rewards points in the weeks prior to Ansett’s bankruptcy.

Australian loyalty programs have become less risky since then

Today, having experienced the collapse of Ansett, Australians are a bit more cautious about losing their points. There was plenty of evidence of this in March and April 2020, when many Velocity Frequent Flyer members tried to cash out their points at the first signs Virgin Australia was in trouble.

But, learning the lessons from the past, there was a significant change to the way loyalty programs account for unredeemed points in 2008. This change in accounting standards was known as IFRIC 13.

Today, loyalty programs must set aside enough cash to pay for the expected cost of the rewards that members will redeem in the future using their unredeemed points. Airlines now account for unredeemed points as a liability on their balance sheets – something Ansett did not adequately do.

Velocity Frequent Flyer was specifically set up with the learnings from the Ansett collapse in mind. The founders not only set it up as a separate business entity, but with a trust in place to provide a cash backing for the value of unredeemed points.

When Virgin entered voluntary administration in April 2020, Velocity did suspend all redemptions for a period of time. But the points were ultimately safe and Velocity did gradually reinstate most redemptions. (First Class reward seats on Singapore Airlines, and redemptions on Virgin’s Chinese partner airlines, still haven’t returned yet.)

So, Australian frequent flyer program members don’t need to be too concerned today about the risk of their airline going bankrupt.

That said, the value of points does diminish over time, you don’t earn interest on points, and they can expire. So, it’s still a prudent idea to avoid hoarding large quantities of points and to use them when you can. Points have no value until you redeem them!

Matt Graham

The editor of Australian Frequent Flyer, Matt's passion for travel has taken him to over 70 countries… with the help of frequent flyer points, of course!
Matt's favourite destinations (so far) are Germany, Brazil & Kazakhstan. His interests include economics, aviation & 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.