Value of a FF program

[BillW]

It's reported that the Qantas FF "business made $231 million" in the past year. (Today's SMH) There are strong moves to have it privatised or sold off.
Could I ask to have explained how this "business" (and presumably all FF programs) makes so much money?
Bill

 

[markis10]

Its a business that has come up with a product that others pay money for to buy that you make margin on, when the points are used you make further margin on it.

 

[harvyk]

There are several threads on this already, but the basics is this business makes money by selling points, first and foremost to QF, and then to the other companies.
Now this is effectively gives them free access to that money to invest as they like until the point is used. Now here is the best part for them, if the point is never used, they get to keep the full cost of the the purchase of that point, which is one of the reasons why the number of months that they would hold onto a unused account went from 36 down to 18, it effectively gives them free money.

Things like ASA's where the number of points required to redeem a seat are beyond stupid (eg 700,000 for a J seat SYD-HGK, where as the next day the same seat is only 80,000) means that they are effectively buying the seat cheap from the airline, selling the seat at a very expensive rate to the customer, and pocketing the difference.

 

[Supersonic Swinger]

They earn their money in a number of ways:

1. When you fly say SYD-LAX return in Economy in QF, the Qantas International division won’t record the full $1,500 price as revenue, but instead will transfer the internal price of the c. 17,500 points to the Frequent Flyer division
2. When you fly LAX-JFK on AA (or any partner airline flight) and you record your QFF number against the flight, AA or the partner airline will have to pay QFF for the agreed price of the points you will earn on that flight (which will depend on the fare class and your status)
3. When you swipe a credit card which earns you points per dollar, the credit card company out of the merchant fee will pay QFF the agreed price for those points
4. When you buy from any provider who offers QFF points, a portion of the price you pay (whether it’s QBE Insurance, Woolworths shopping, rental cars etc) will be paid by them to QFF for the points you earn.

You then redeem those points either for:

1. Flights on Qantas where the seats are expected by Qantas not to be sold as revenue tickets, or on Any Seat Awards for a price per point less than that paid to QFF when you earned it; or
2. For merchandise where the value of each point is less than the price paid to QFF when you earned it.

Hard for them to lose money on the programs. Operating the airline, now that’s another matter…

 

[Kangol]

Things like ASA's where the number of points required to redeem a seat are beyond stupid (eg 700,000 for a J seat SYD-HGK, where as the next day the same seat is only 80,000) means that they are effectively buying the seat cheap from the airline, selling the seat at a very expensive rate to the customer, and pocketing the difference.

That is not much different to normal revenue offerings of different fare buckets with different prices and restrictions for the same flight..

 

[oz_mark]

Things like ASA's where the number of points required to redeem a seat are beyond stupid (eg 700,000 for a J seat SYD-HGK, where as the next day the same seat is only 80,000) means that they are effectively buying the seat cheap from the airline, selling the seat at a very expensive rate to the customer, and pocketing the difference.

If they are selling you a seat for 700,000 points, I doubt they are getting that seat cheap from Qantas.