The Gold Coast Bulletin

Qantas warned to ground plans to sell frequent flyer program


QANTAS has been warned against selling off its lucrative frequent flyer program to try to address a predicted loss of close to $1 billion.

The depreciati­on of the airline’s ageing fleet, mass redundanci­es and other writedowns are tipped to add $450 million to already heavy losses when the full-year financial results are revealed on August 28.

It follows a bigger than expected half-year loss of $252 million, which triggered a $2 billion cost cutting program and a target of 5000 redundanci­es by 2017.

Qantas frequent flyers hit 10.2 million

Commonweal­th Bank financial analyst Matt Crowe said there was persistent industry speculatio­n Qantas might offload all or part of its loyalty program valued at between $1.5 and $2.5 billion.

He said that would turn around the airline’s financial woes, but the long-term cost would be considerab­le.

“My view is the frequent flyer program is more valuable to Qantas than it is to anyone else,” said Mr Crowe.

“The only reason it works is because it has a guaranteed supply of (plane) seats from Qantas.

“If you sold the program then getting those seats would be potentiall­y more difficult.”

He said the other factor in any sale was Qantas could be seen to be abandoning its most loyal customers.

“By selling frequent flyers, you’re giving another organisati­on the ability to market to your best customers,” Mr Crowe said.

“I’m sure that’s one of the things (CEO) Alan Joyce is grappling with – do you want to give away your highest value customers?”

IG market strategist Evan Lucas said there was no denying Qantas was in a bad way financiall­y with their credit rating close to junk status.

“You and I can borrow money more easily than Qantas because their (Ba2) credit rating is so poor,” Mr Lucas said.

“They could raise money by floating the frequent flyer program which would be interestin­g. It wouldn’t be the most lucrative way of doing it but it’s certainly a possibilit­y.”

Both he and Mr Crowe agreed the carrier had to find more ways to reduce their cost base which was higher than those of its competitor­s.

Mr Crowe said Qantas management was frustrated by workplace practices that kept aircraft on the ground, rather than in the air.

“It’s a highly unionised workplace, and I know management believe they could lower their cost base if those restrictiv­e work practices were removed,” he said.

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