Qantas should hang onto its lucrative frequent flyer scheme and sell off "a large block of points" rather than the program itself to raise money, suggests one financial analyst.
In other words: instead of selling the goose that lays the golden eggs, just get it to lay more eggs.
42 billion more eggs, to be precise.
Commonwealth Bank analyst Matt Crowe calculates that Qantas could offer a super-sized serve of 42 billion Qantas Points to its network of retail partners, potentially raising the airline a handy $500 million in much-needed cash.
"Qantas Frequent Flyer is more valuable to the Qantas Group than it is to any other potential owner so selling part or all of it makes little sense" Crowe says of proposals to sell the scheme outright, which could carry a price tag of $1.5-2.5 billion.
"Any potential owner would face the risk that Qantas increases the ‘price’ at which it supplies seats or even cuts off the supply of seats altogether. QFF is totally reliant of Qantas for seat so it makes sense for it to remain a subsidiary of the Qantas Group."
An alternative, Crowe says, is for Qantas to issue a significant block of points to partners.
"While this would reduce the value of existing QFF points is it probably a better option than diluting shareholders."
Here is Crowe's maths behind the move.
- Qantas sells points to banks, credit card companies and retailers at an undisclosed price
- However, Crowe points out that Qantas Frequent Flyer members can purchase "small parcels of points from the QFF website for 'top-up' purposes for about 2.5c per point...so the price for a 'bulk' sale would have to be materially lower than 2.5c per point. "
- Considering that a $250 Myer gift card costs 37,500 Qantas Points at the Qantas Store, Crowe estimates that "Qantas buys points at about 0.7c per point".
Using 0.7c and 2.5c per point as the lower and upper 'cost per point' limits, for the purposes of this exercise Crowe suggests Qantas could set "a bulk sale price of 1.2c per point" to retail partners.
Qantas "could hypothetically issue 42 billion points at 1.2c per point and raise approximately $500m" Crow explains, giving the airline a much-needed injection of short-term cash "to shore up its balance sheet."
Of course, flooding the market with the equivalent of six Qantas Points for every person on the face of the earth is not without its downsides.
"Losers in the deal are QFF members who see the value of their points balance diluted as more points chase the same number of QFF seats" Crowe predicts, although he notes that "it would be virtually impossible for QFF members to determine the extent of any dilution."
"Selling points has its drawbacks – the most obvious being that it harms the loyalty that the Qantas Frequent Flyer program is designed to generate. Nevertheless, we think issuing points is a better option than selling QFF or raising equity."
Of course, that flood of points might also see many retailers ramping up their efforts to woo customers with promotions offering a slew of extra bonus points – something which savvy frequent flyers know how to take advantage of.
How do you see this tidal wave of Qantas points impacting the Qantas Frequent Flyer scheme as a whole?
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