Hi,
With the unprecedented global shutdown of airlines, will Frequent Flyer programs remain? If times are tough, I’m wondering whether airlines will cut anything that doesn’t directly generate revenue. Is there a possibility all our accrued points will become worthless? This occurred to me as I, like many others, have had to cancel a huge amount of travel this year.
Thoughts?
Cheers
David
Hi David,
There’s no chance that FF programmes will be shut down. I can think of three reasons but there are probably more:
FF programmes are incredibly profitable for airlines. In some cases, the airline’s FF programme is actually the most profitable (or close to it) part of the business.
It would be a PR/marketing disaster for the airline. Imagine what would happen if Qantas killed off its FF division – people would flock to Virgin, and vice versa if Virgin killed Velocity.
Legally, this would be highly problematic and various regulatory authorities would become involved. In Australia, the ACCC would probably try to take the airlines to court. You could also expect to see class-actions arising against the airlines which would mire them in court cases and horrible publicity for years to come.
My two caveats are that yes, if an airline actually goes bust, their FF programme will go bust with them (this is what happened with Ansett two decades ago). And it wouldn’t be unexpected to see a devaluation of FF programmes and points: these regularly happen even when airlines are profitable.
But airlines ditching their FF programmes entirely, at exactly the time they need to entice their customers back? Not a chance.
Thanks for the insights. Because I earn all my points from cards I forgot that many of course earn their points through flights. In that context this makes perfect sense.
Cheers
My biggest fear currently is that Virgin will not be bailed out by the government and will then go bust. I have a very large amount of points in Velocity currently. Do you think it would be prudent to move them to Singapore Airlines via transfer. This was my eventual intention for redemption anyway, but hadn’t done it because they would eventually expire in KrisFlyer.
Gee, I didn’t even think about that scenario. But yes with announcement that Government won’t be bailing them out, it’s a concern. I guess Virgin is an international brand so maybe the points would be retained for use on their international network? Singapore could be an option as I figure most governments wouldn’t allow their flag carriers to go down.
I think that the ACCC will insist on some form of aid for Virgin as well because its just a monopoly without Virgin. Of course, Qantas will get more money because they are a bigger and more essential airline but Virgin will have to get some as well. As Alan Joyce said, ‘The government can’t pick winners and losers.’ If virgin indeed go bust, it won’t be the government’s fault.
Dhein, the key is that frequent flyer programs are profitable and not just a cost centre, (as sixtyeight noted). In that case, whether you earn points via flying or via credit cards is not the main factor, I suppose.
Any business offering QF or Velocity frequent flyer points buys them from Qantas Loyalty or Velocity. Qantas/Velocity charges them more than the cost per point for a redemption. Hence why they generate huge margins.
Yes airlines want to attract flyers back with Frequent Flyer benefits. But they’ve created a valuable pseudo-currency (hence why Qantas has launched reward incentives aimed at those who earn points via credit card spend rather than flying). If they were to kill the FF program, they would be shooting themselves in the foot. Zero chance that happens (except in case of bankruptcy)
Djtech, currently the government’s stance is that they want competition via a second airline. Whether that has to be Virgin is another matter. Virgin is asking for $1.4b. Qantas has said (when Alan Joyce made his comment you referenced) that if that’s the case, Qantas is in line for a much larger bailout (north of $4b I think?). Joyce’s point is that the government can’t choose to just help one player, effectively picking winners and losers.
The issue the government has is that Virgin has large foreign ownership via Singapore Airlines and Etihad. The government wants those owners to dip into their pockets before asking Aussie taxpayers, which is fair enough (although those airlines are having their own problems).
So the ACCC stepping in is not a guarantee and I don’t believe the ACCC has the power to compel the government to bail Virgin out. They could just make some suggestions. I wouldn’t have thought it’s their call at the end of the day.
Virgin doesn’t work that way unfortunately. Virgin as owned by Richard Branson is an investment firm that builds or acquire businesses and uses the Virgin brand. He’s long since sold out of Virgin Australia (mostly - I think owns sub-10% nowadays).
So VA has few real links with Virgin Atlantic and Virgin America and are no closer to those businesses than they are to Singapore or Etihad (less so given I think both those airlines are 20%+ owners of VA).
So the odds of the other Virgin businesses stepping in to recognise Velocity points are about the same or worse than SQ or Etihad, unfortunately
Very insightful, thanks. Makes me feel a lot more comfortable moving forward.
Cheers 
Wow, looks like the worse case scenario happened with Virgin. Did you manage to successfully transfer points?
The “worst case scenario” would be Virgin going into liquidation and that’s nowhere near happening yet.
The “best case scenario” with Virgin would be with it emerging with a new, relatively-cashed-up owner which leaves it more competitive than it was before. You might think that this is wishful thinking, but that’s exactly what happened when Network Ten went into administration: it emerged with CBS as its new owner and more competitive, and with deeper pockets, than before.
My take is that Virgin is currently one step closer to a worst-case scenario … but it’s also one step closer to a best-case scenario. We just need to all take a deep breath, and wait and see how things pan out.