When Qantas recently banned most Jetstar customers from their business lounges and cracked down hard on the ability to transfer lounge entry tickets, there was one very valuable lesson we should all have learned.
These so-called frequent flier or loyalty programs are just like the dodgy casinos with a button under the roulette table—the house always wins, and the rules of the game are rigged against you.
The value of points accrued are subject to rapid devaluation at the whim of those running the system, and there is a confusing and always changing set of rules around the operation of frequent flier programs of all types and how they operate across different airlines.
There is also no shortage of aspirational psychology going on here as well.
Who wants to be bronze, when they could be silver, gold, platinum, platinum, or whatever meaningless “classist” label is used in an endless progression that delivers a lot less than it seemingly promises.
There is also the lure of “getting something for nothing”—be it lounge access, “free” flights, or using points to buy things.
No Charity Involved
Here is where it is important to be able to read a balance sheet and realise that, perhaps surprisingly, these loyalty programs are not a giant charity handing out freebies to deserving and loyal customers—they are incredibly strong and profitable businesses.
Indeed, in the case of Qantas, there have been years such as during Covid shutdowns, when the loyalty arm was one of the most important profit contributors of all.
With an incredible 16 million Australians members of the Qantas loyalty program, in the most recent results it hit a record underlying pre-tax earnings level of $511 million.
It turns out those 20 million “available” reward seats were actually a really important part of earning some serious money for the airline and not part of some pseudo charitable venture to keep customers happy.
Becoming Pseudo Currencies
In fact, both points and status credits have reached the level of pseudo currencies with the airlines using advanced data techniques to drive growth and keep their customers “sticky” through extra points and status promotions.
They even earn money by simply producing these points and credits out of thin air with the banks buying points and paying a margin to the airline so that they can be given to their customers with credit cards—one of the many ways they produce a profit from the scheme.
This is why there are periods in which getting points or status credits is made easier to, using their language, “drive engagement and profitability through innovative products and partnerships.’’
Hard to Go Backwards
As a consumer it is very hard not to be drawn into these class climbing promotions and really difficult once you have achieved a certain level to be disciplined enough to see your status level drop or – horror of horrors – your hard-earned points expire without being used.
The answer provided by the loyalty programs is (of course) to keep spending, either by flying with the particular airline or through spending on linked credit cards to accrue more points.
The important thing to realise here is that unless you are really disciplined, hopping on the points and status treadmill can be really dangerous for your financial health.
These big profits don’t come from nowhere and pursuing points and credits by thoughtlessly spending more or by buying more expensive airfares than you need to can damage your financial health.
Keeping up with Confusing Conditions
That is particularly the case when you consider how often these systems change, to the extent where keeping up with what benefits are available and how you claim them is a difficult job.
That time navigating new rules would be much better spent ensuring you are on the cheapest energy plan at home or ensuring your latest car insurance renewal is competitive.
The obvious spending guidelines are to never be rushed into spending decisions by special promotions and to always buy the most competitive air fare for your purposes—even if it is from an airline where you are not part of the loyalty program.
Always be very careful about spending with credit cards, which have a nasty habit of biting back with hefty interest charges if you exceed your available cash flow before they fall due.
The best way to handle earning points with a credit card is to mainly buy essentials like food and pay bills and always ensure you can pay off the monthly balance in full to avoid paying interest.
In the long run, it is much better to have a healthy financial status than the often illusory and difficult “class” benefits available through cleverly designed plans to tap your loyalty and grab a greater share of your wallet.
