Home' Australian Aviation Magazine : May 2011 Contents 27
MAY 2011 AUSTRALIAN AVIATION
at is a critical point for Virgin Blue as
it contemplates its assault on the business
market and a relaunched frequent yer
program. In today's more competitive
environment, management can't a ord
to just focus its marketing e orts merely
on gaining new customers, but retain-
ing existing ones. e cost to gain a new
customer can be ve times more expensive
than to retain one.
at, of course, is great news for Qantas
and lousy news for Virgin Blue.
Citing other papers, the report states
that the bene ts of retaining customers
has a direct impact on company pro tabil-
ity. " e costs associated with taking care
of loyal customers decline over time, while
at the same time, sales from loyal buyers
increase as a consequence of their loyal
It adds that "loyal customers will
also present partnership actions such as
spreading a positive word of mouth to
their friends and relatives."
However, despite the rapid growth of
loyalty programs, the paper claims that
many questions arise about the e ective-
ness of the programs to truly enhance
According to the paper, while it requires
a huge amount of money to run the pro-
grams, facts indicate that many organisa-
tions have failed to increase customer
loyalty through the implementation of the
e nancial success of the Qantas
Frequent Flyer program does suggest it is
successful in generating customer loyalty.
But its pro tability -- for 2010 nancial
year it earned an underlying EBIT of
$328 million, and underlying EBIT of
$189 million in the rst half of the current
nancial year -- shows how important the
yer scheme is to the airline as a revenue
generator and pro t centre in their own
right, as the scheme's partners buy the
points from Qantas which their customers
earn when buying that company's goods
or ser vices.
For the 2010 nancial year, Qantas
reported that classic award airline partners
increased by three to 27; 43 airlines and
over 100 destinations were added to the
'any seat ' awards category; that 3.4 million
seats were redeemed on ight awards; and
that 350,000 products were redeemed in
the Qantas Frequent Flyer store.
Qantas also detailed the changing
pro le of redemptions, with 'Classic'
redemptions slipping to 77 per cent of all
points redemptions, from the prior year's
80 per cent, with 'any seat ' redemptions
lifting to 11 per cent from nine per cent.
Store redemptions rose one per cent to 12
SHORT TERM -- LONG TERM
Back in 1995 a study published in the
Harvard Business Review, "Do rewards
really create loyalty?" suggested that in
practice, loyalty programs are widely
misunderstood and often misapplied,
with many companies treating them as
short term promotional tools for their
customers. is, the report said, resulted in
customers becoming loyal to the programs
rather than to the company.
Hickey comments that it may well have
been the case in the past, but today the
Qantas program is focused on long term
ere are clearly two factors that are
critical for loyalty to grow. e rst is cus-
tomers' emotional attachment toward one
certain product or ser vice, and the second
is customers' repeat purchase.
And the rst global report undertaken
of frequent yer programs, compiled
by Sydney based research company
IdeaWorks, has found that frequent yer
program seat availability is becoming an
irritant -- not a loyalty magnet.
Sponsored by travel industry software
supplier ezRez, the "Guide to Loyalty
Marketing" report issued last year reported
on the di culty in gaining frequent yer
award seats, showing that airlines are
broadening redemption to other com-
modities besides seats.
"More airlines are choosing to solve
reward availability issues by allowing
members to redeem miles, kilometres,
credits, and points for hotel accommoda-
tions, car rentals, personal ser vices, travel
insurance, activities, vacation packages and
merchandise," said ezRez Software SVP,
sales and marketing, John Swanciger.
" ese methods provide more opportu-
nities for members to spend frequent yer
e study found that reward seat short-
ages are the top complaint among pas-
sengers worldwide, and this has been exac-
erbated by the sharp cutbacks in capacity
in the last year, as high load factors mean
there are fewer redemption seats available.
"Frequent yer programs may sound the
same," said the report, "but they are not.
Some frequent yer programs make good
on their promise, to customers and the
POINTS MAN Simon Hickey, chief executive officer
of the Qantas Frequent Flyer program. (Qantas)
DRAWCARDS? Almost eight million Australians have a Qantas Frequent Flyer card in their wallet or purse, while Ansett Global Rewards cards are now historical
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