Here’s how Qantas Frequent Flyer makes money for the company

How Qantas Frequent Flyer makes money is a key question any investors looking at or invested in Qantas should ask. During the pandemic, it played a major role in keeping the airline afloat as revenues from points kept coming in. Consider that in FY20 during pandemic shutdowns, Qantas Loyalty made a $341m profit (down just 9% at the same time the domestic and international businesses profits fell by over 75%, not even accounting for non-cash losses like the A380 writedowns).

And even now, Qantas Loyalty is far more profitable than international flights. But how exactly does the business model work? What will last week’s changes mean the business model? And could any crackdown on credit card surcharges put it under threat? Let’s deal with each of these in turn.

How Qantas Frequent Flyer makes money?

In a nutshell, by selling the points to third parties including the banks offering points-earning credit cards, Woolworths, BP and other program partners. They pay Qantas for the privilege. Qantas places its own confidential value on the cost of each point and sells points with a margin.

Eerily similar to how banks want to generate more interest from mortgages than it pays out to savers, Qantas wants to generate more from selling points than it burns from having those points spent. Qantas Frequent Flyer also makes money when points expire after 18 months of inactivity.

How are points recorded on the balance sheet? They appear as a liability, known as ‘deferred revenue’ or ‘unearned revenue’ because it is expected that these points will be redeemed. When points expire, this figure goes down and the company’s balance sheet looks healthier as does its cash flow statement.

Do keep in mind the Qantas Loyalty division also consists of non-flying businesses including Qantas Money, Wine, Insurance and Hotels where points can be earned or spent.

What will last week’s changes mean for the business model?

For those who’ve been on Planet Mars, Qantas unveiled changes to Qantas Frequent Flyer. From August, the cost of many award seats will increase by up to 25% on some routes. Now Qantas will say the changes are overall positive because members will need less points for Jetstar awards and will earn slightly more points for flights they pay for with cash.

Plus it will make award seats on Hawaiian available, not to mention premium economy seats on Finnair, Air France, KLM and Iberia (previously they were only available in business and economy even though those airlines have had a premium economy cabin). Plus Qantas will also note that this is only the second increase since 2004 and the first since 2019 and these only come into place in August 2025.

Credit where it is due for giving advance notice of these changes – this isn’t something all frequent flyer programs do. Plus it is easy to think about what it could have done but has not – it could’ve abolished fixed numbers for points seats altogether and gone fully variable, or it could’ve gone to a ‘revenue-based program’ where you earn $1 for each point spent or earn. The latter is a direction many global airlines have gone.

But now that we’ve outlined those changes, let’s back on track to the question here: What will these changes mean for the business model? Qantas hopes that it will make more money from the program by making people strive to earn more points because they’ll need more points to book a Classic Reward. But of course, if they are not used in 18 months they’ll expire and it hopes that members will use the points on something that is not a flight (like a toaster or bottle of wine which’ll cost a lot less for the airline than a premium cabin seat) or perhaps give up on finding seats and let them expire.

Obviously, this assumes Qantas Frequent Flyer members continue engaging with the program. Airlines have backed off from changes when the backlash is enough to suggest it’ll cause the program slowing down. One example of this is Delta which in 2023 backed down from modifications which would have made it more expensive to earn elite status and enter lounges. Delta’s CEO went so far as to confess,’ We probably went too far’.

One reason why Qantas has done so well is because there’s little alternative in Australia. There’s Velocity which despite having some international partners has less than Qantas. If you were an ‘AV geek’ or ‘points nut’ you could potentially earn points in a foreign program like Aadvantage or Avios, but these programs have their own intricacies and could be devalued at any time without advance notice.

Of course, Velocity has had a major boost with its partnership with Qatar Airways which’ll enable their members to book flights with Qatar to Doha and beyond. Perhaps you may have a chance at using your points for business class to Europe in the northern summer. If Qantas Frequent Flyer members vote with their wallets and move to Virgin’s program, then Qantas’ revenues from the program will decline.

And could any crackdown on credit card surcharges put it under threat?

There has been a lot of controversy around credit card surcharges and speculation that these could be banned – or perhaps just surcharges on debit cards. Interchange fees are how banks are able to offer frequent flyer points and so if they were banned, they’d have to find some other way to fund them.

Now the threat of this is why Qantas has has been delivering new loyalty products beyond Qantas Frequent Flyer including Qantas Wine and Qantas Hotels, but it has never faced this threat to the extent it has now. Of course, we are only speculating as to what will happen – we’ll only know when our politicians pass and legislation.

Conclusion

If you’re investing in Qantas, you’re not investing in a pure-play airline. You’re investing in a loyalty business that happens to offer flights. So it is important to know how Qantas Frequent Flyer/Qantas Loyalty makes money and we hope we’ve gotten you started here.

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