The Woolworths & Qantas points deal saves Woolworths’ bacon, but Qantas is the real winner

This is an opinion piece by Steve Hui, CEO of iFlyFlat. He published this late last year and I enjoyed reading his take, so figured it was worth reposting for Point Hacks readers too. Go Steve…

The Australian public loves to travel, and in turn they love their frequent flyer points. Changes are typically not well received.

Many people have a non-sophisticated one-airline points strategy. They might pool all their efforts into Qantas points in order to earn enough points for a future redemption.

  • Qantas Frequent Flyer is the dominant airline points program in Australia with over 11 million members.
  • Virgin Velocity is second with over 7 million members.
  • Woolworths’ was reported to have over 9 million program members.

Social media and mass media backlash against Woolworths showed many people were beginning to seek alternative point programs and were switching their shopping habits. This luck played into the hands of Qantas which was desperately trying to negotiate a new deal with Woolworths, and recover a slice of the $81m/year in points revenue.

If the Woolworths/Qantas deal was to completely end, I projected that this would have resulted in four major flow-on problems for Qantas and impact on its earnings in both Qantas Loyalty (points) and Qantas Airlines (flight sales):

  • Qantas points expire after 18 months of non-activity. As we move toward July 2017, potentially millions of Woolworths customer’s Qantas points will begin to expire (assuming they didn’t have an earning or using activity). This **will cause a massive customer service problem for Qantas **as they need to explain why the points expired to avoid a backlash against Qantas for ‘stealing’ their points. (regardless if they were within the terms and conditions).

  • The Woolworths scheme is a grassroots way to earn Qantas points for many customers, so they are more inclined to fly Qantas (vs. Virgin or Tiger) in-order to add points to their accumulated balance for an eventual award redemption (aka the one-airline points strategy). Without an easy way to earn Qantas points – customers will look to alternatives as they are not ‘locked-in’.

  • With the lower credit card interchange fees cap imposed by the Reserve Bank of Australia, many credit card reward schemes have begun to offer a lower level of Qantas points per $1 spent. Some have introduced points caps too. This again means certain customers will be earning less points, which may in turn reduce their desire to fly Qantas to earn and to earn more points into another program.

  • Once consumers consider switching supermarkets, they will probably begin to change their habits. Driving to different shopping centres, parking in different car parks and beginning to learn their new store layout. Once consumers have switched their habits, it is very hard to get them to switch back, as sometimes they may have discovered something better. This applies equally to flying Qantas.

Woolworths backflip on Qantas points

Woolworths announced a backflip to their new Woolworth dollars reward program by reinstating the option to earn Qantas Frequent Flyer points. The announcement on 15th December meant Woolworths customers will now be able to redeem 10 Woolworths dollars for 870 Qantas points. Here’s the Point Hacks guide to the new Woolworths Rewards program — Keith

Barely two months ago the supermarket announced it would stop rewarding customers with Qantas Frequent Flyer points. Woolworths made the point that their new dollars program was a simpler and more generous scheme based around discounts on groceries and alcohol.

Woolworths’ initial argument for ditching Qantas Frequent Flyer rewards was that their internal research revealed 60 per cent of Everyday Rewards’ members who were enrolled in the Qantas program failed to redeem points in the past year.

With Woolworths buying approximately $81 million worth of Qantas points each year, this would mean $48 million (60 per cent) was not being fully utilised and going to waste.

On the surface, it made sense for Woolworths to redirect those funds. But frequent flyer points are complex. The value range of each point can vary from 0.7 cents to 5 cents depending on how it is utilised. Members may have been accumulating Qantas points and not seeking to redeem them every year.

Woolworths’ first problem

Woolworth’s underestimated the desire for Qantas points. It is in people’s nature to buy and accumulate things even if they never use those things. People like to know they are building a nest-egg of points towards something special in the future. They want the control to choose, they may not in the end use them, but it was their choice.

As the CEO of www.iFLYflat.com.au, we help customers to optimise and leverage the value of their points, and we see this problem daily.

All our customers have stockpiles of points or have the capacity to earn lots of points, but they do not understand the goldmine of value on the points they have, and don’t have the experience or the time to use to work out how to use the points effectively.

Previously they may have been completely happy redeeming their points for gift vouchers, a toaster or a vacuum cleaner but once they realise the same points could be redeemed for a luxury experience flying First class return to Auckland – they recoil and think, OMG – how many flights have I wasted and I’m paying money to fly economy.

Woolworths’ second problem

Woolworths misjudged the switchover by not having enough attractive Woolworths dollar offers to entice customers to the new scheme at the early stages when customers were still mourning over the loss of Qantas points.

Woolworths should have utilised their extensive customer data to ensure a strong representation of ordinary items were eligible for earning Woolworths dollars, that demonstrate why it was better value. This would have gone further to winning the public’s support for the new rewards program.

Instead, customers did their normal shopping and realised they received fewer Woolworth dollars from their grocery spend. One customer shared that he had spent over $1,000 and only received $4.80 in Woolworths dollars, which of course went viral over social media. Customers were sharing their dislike of the new program and many were announcing they were changing supermarkets.

Reference: Woolworths’ Rewards Card rant goes viral

People love their frequent flyer points and don’t like anyone messing with them.

Citibank Reward program’s sudden change suffers a similar backlash from social media

The same consumer response was in action when on 1st November 2015, Citibank changed their reward points to airline point conversion rates for two key airline partners (Singapore Airlines and Virgin Velocity) without notice to their customers. In the eyes of their customers, this was a material adjustment which impacted on the value of their customer’s existing points balances.

Many loyal customers had saved up hundreds of thousands of points, and some had millions of points saved over many years with the aim of using them on future dream trips.

The idea that some of that value was suddenly withdrawn without an opportunity for customers to act, resulted in a large social media campaign, and threats of legal action from their card holders.

However, 48 hours later, the change was reversed, allowing cardholders to again convert points at the previous rates. However, the loss of trust and the pending changes has prompted many customers to look for alternative reward card options.

In realising their previous sudden change was unfair and that their terms & conditions were not clear on the required notice period for their customers. Citibank has this week shared their updated their terms and conditions, and re-announced changes to their points redemption rates giving cardholders 3 months’ advance notice of the new changes effective 18th March 2016, amongst other changes.

Reference – Point Hacks overview of the Citi Rewards changes

We will may be so lucky to get advance notification for future changes, as the new terms and conditions state they will only give notice on changes where ‘they’ reasonably consider it to be material, otherwise no notice will be provided.

I hope this is only for legal coverage, and not a way of operation to amend reward benefits without notification.

The reasonable person will consider that their points have a certain value, just like cash held in the bank account. Both are considered assets. It is poor practice for any business to change the terms suddenly to reduce the value of your assets without telling you, and without giving customers an opportunity for you to take action to preserve the value which they have accumulated.

Drawing back at my accounting background, points can be considered an asset.

An asset is defined as:

  • a resource controlled by the entity, (you choose when to redeem)
  • as a result of a past event, (you use the card, and earned the points)
  • from which future economic benefits are expected to flow to the entity.(conversion of the points into a future frequent flyer tickets)

Frequent flyer points are designed for one purpose – to fly. That’s where the best value comes from.

Points are also the only asset which can make you happy every time, as I’ve never met anyone grumble about going away on a holiday, especially if they are flying business or first class.

The Woolworths & Qantas points deal saves Woolworths’ bacon, but Qantas is the real winner was last modified: January 12th, 2016 by Steve Hui