Figures might not fly

Query on Qantas Frequent Flyer redemption numbers

A Citi financial analyst has questioned Qantas’ promise of 20 million seats for frequent flyer Classic Plus redemptions, saying that would represent half of the airline’s preCovid-19 inventory.

Qantas unveiled the new Classic Plus product on Monday, to try to appease frequent flyers frustrated at being unable to redeem mountains of points on flights they wanted.

Chief executive Vanessa Hudson said the Classic Plus redemptions would be available only on Qantas-operated flights and not Jetstar.

In response, a report by Citi Research analyst Samuel Seow said before Covid-19, the Qantas (red tail) airline carried 31 million passengers, and offered about 40 million seats for sale.

Mr Seow said given that 20 million seats represented 50 per cent of Qantas capacity, the airline “could not be expecting redemptions anywhere close to this number”.

“It appears the 20 million seats may be priced, so only a low percentage are redeemed,” Mr Seow said.

“We estimate $70m is the actual investment in the change (and) our back-of-the-envelope equation suggests this equates to potentially 10 per cent of 20 million seats being expected to be redeemed.”

Mr Seow’s report surmised that the downward adjustment Qantas made in its forecast earnings for the Loyalty sector in the 2024 financial year, from $550m to about $500m-$525m, was largely an accounting change, given that Classic Plus seats were not available until July 1.

“Overall, we largely see the actual cash investment as small … Subsequently, we estimate only modest increases in engagement, but similarly limited risks of cost increases.”

His valuation of Qantas shares increased to $5.85. UBS analyst Andre Fromyhr was targeting $7.50.

“We think the overall impact (of Classic Plus) is likely to be relatively immaterial to earnings and cash flow, notwithstanding uncertainties around the customer response,” he said. “We think the relief from the overhang of the Loyalty announcement mostly explains the plus 5 per cent increase in share price (on Monday).”

Qantas’ share price continued to climb on Tuesday, up almost 2 per cent at $5.80 just before noon.

The public response to the new product was mixed, with a

Point Hacks’ survey of readers showing 41 per cent would redeem points only on the lowerpriced Classic Rewards seats.

However, 45.5 per cent of the 931 respondents said they would consider Classic Plus as an option, and 13 per cent said they would redeem their points if it meant they could book the flights they wanted on their preferred dates.

Qantas also announced a 72-hour sale on Tuesday on domestic routes, which are not yet included in the Classic Plus offerings. Fares start from $105 one-way Launceston to Melbourne, up to $349 for PerthBrisbane.