For Qantas Airways, Australia’s flagship airlines, its loyalty program is proving to be a stronghold in recent times of uncertainty.
As the airlines announced its worst loss in history last week of £2.8 billion, preceded by drastic layoffs earlier in the year, Qantas has decided to maintain full ownership of their loyalty program called Qantas Frequent Flyer. Investors had recently suggested that selling the program would be profitable as it had been valued at up to £3 billion. But, Chief Executive Alan Joyce said last week the airline had decided against partial sale of the loyalty division after a long-awaited review of the business.
"This business is a great business," he said. "We believe there is shareholder value still for us holding that business."
Business is great because the Frequent Flyer loyalty program, which posted its fifth straight year of double-digit earnings growth to hit a record underlying profit of £286 million, goes beyond the traditional air travel points and miles approach with strategic partnerships and other offerings. Through Frequent Flyer, Qantas offers consulting services, data mining, and runs gift card programs for top Australian retailers – successfully embedding itself into the Australian market with over 10 million members. That’s half the population of Australia.
"The Frequent Flyer program isn't a 'cash-in' for Qantas, it's a cash cow," said Steve Worthington, a marketing professor at Melbourne's Monash University. "They were the first mover in the domestic market and their program runs far deeper than any other."
Also facing financial setbacks is rival carrier Virgin Australia, falling to an annual net loss of £356 million, which is more than triple the previous year’s loss. To help address these problems, Virgin is taking a different approach from Qantas, announcing the sale of 35% of its Velocity loyalty program to private equity firm Affinity Equity Partners, which valued the total business unit at £960 million.
Because of Affinity’s wide reach and relationship potential, executives at Virgin are stressing that this move is strategic above all, with Virgin maintaining a majority stake.
“The transaction represents an exciting opportunity to accelerate the growth of the Velocity Frequent Flyer business and fast-track its strategy to become one of the world’s leading loyalty programs,” Velocity Frequent Flyer CEO Neil Thompson told Loyalty360. “This was a strategic decision and delivers a great platform from which to develop the program into a world class loyalty business.”
It will be interesting to see how the two airlines move forward in recovering from their losses, the impact of their decisions and how the loyalty program of each will be affected.