Last week Qantas announced changes to the Qantas Frequent Flyer programme. The changes included a big increase in the number of points required to redeem classic awards, partially offset by an increase in earnings on selected flights. As expected, the changes have come in for some criticism but not to the same extent as recent changes by British Airways that were met with derision.
Qantas might be complemented for the forthright nature of their communication that was clearer and more transparent, but one shouldn’t ignore that the changes just aren’t as egregious. So what has motivated these changes? Some insights from monetary economics and data from Qantas’s annual reports might give us a hint!
“Inflation is always and everywhere a monetary phenomenon”
Economist Milton Friedman famously postulated that “inflation is always and everywhere a monetary phenomenon”. What this means is that increasing prices are a function of the supply of money. If there is suddenly more money chasing the same number of goods, the prices of those goods will increase in order to efficiently allocate them.
More money doesn’t result in the creation of more goods, and frequent flyer points are no different! If more points are being created then the price of redemptions will increase unless the airline makes more reward tickets available (more to this later).
Data from Qantas’s annual reports shows the number of points earned has increased significantly in recent years, from 156 billion in 2019 to 175 billion in 2023, and surging to 202 billion in 2024. This is an increase of 31% since the pre-pandemic baseline and 17% in the last year alone!
Redemptions have increased as well but haven’t been able to keep pace, increasing 27% since before the pandemic and 10% in the last year. This has resulted is an increasing gap between earning and redemption.
But what has been driving the increase in earnings and redemptions? Are people traveling more and/or traveling more in premium cabins and thereby earning more points? Or have customers been making more use of points earnings from external providers?
No, they haven’t! Increasing earning and redemption is coming from increasing membership! Qantas has seen a surge in membership with the number of members increasing 27% between 2019 and 2024 (12.9 to 16.4 million members)!
The average points earned and redeemed per member has remained relatively stable over time. Earning per member between 2019 and 2023 but recovered in 2024 (2% more than its 2019 baseline), while redemptions per member are 1% lower in 2024 compared to 2019. Customers are earning and redeeming at similar rates, however there are many more members earning and redeeming.
What this suggests is that Qantas have been incredibly successful in growing the Qantas Frequent Flyer membership base, driving up the aggregate earnings and redemptions.
As our last chart of the week showed, Qantas group level international capacity has only just met its pre-pandemic benchmark. Without more capacity available they simply can’t make that many more reward tickets available. The obvious caveat is that redemptions can be made on many partner airlines as well, nevertheless this highlights a reason why Qantas is seeking to inflate the cost of classic rewards: too much money is chasing too few goods!
To their credit, they’re boosting some earning opportunities to partially offset the increase in prices of classic redemptions, however it would be right to assume that this is set in favour of the airline by rewarding high margin tickets.
An important question is what happens if they don’t inflate the price of classic rewards? Well it will simply be more difficult to find them. It’s a bigger pill to swallow!