[medhead]

Originally Posted by Platy

First caveat. The earn/burn ratios are always in the airlines favour and represent a few percent of turnover and are ever increasing. It takes a lot of loyalty (flights and partner business) to earn points and a lot of points to redeem a benefit for the customer. Our loyalty is being bought for a low percentage. Thus you need to introduce an algothorim for marketing budget into your cost/benefit analysis.

If you look at the profit information in the link from Oz_mark. The Profit (BT) was about $60m and revenue was about $400m. Does this broadly indicate that the earn/burn rate is about 15% towards the airline? And $60m in less than 10% of a almost $1000m profit for the group.

[Platy]

Originally Posted by medhead

Usually I'd be happy to stick it to the accountants. BUt I'm not sure this is the case here. QF Loyalty seems to be a separate cost center to QF airline. Certainly they should be if they are reporting a separate profit. I think this situation gives rise to the things that you've mentioned.

In reality the Loyalty program is just another customer of QF. And customer loyalty is probably the job of the Loyalty Program not QF. SO there is a no connection between customer loyalty and setting the cost of loyalty seats. Sure the loyalty program can choose to sell at a loss to satisfy loyal customer, but the QF board will still expect a profit from them.

While I still puzzled and I don't really understand all the fine detail, I'm more inclined to point a finger at management rather than the accountants. In particular the type of management that danced with the hedge funds. Unfortunately, even with the passing of the junk yard dog, I don't see this improving.

Some interesting ideas and observations, Medhead!

I assume you are right that the FF program is defined financially as a separate cost centre - indeed my understanding is that definition of separate such cost centres and attendant accountability has been part of the legacy of the outgoing CEO ("junkyard dog"?! ) and applied across the business.

Looking at the part of your quote in bold/italics, I would note that however these things are defined it would surely be questionable business practice for QF (the airline) not to champion "customer loyalty" as an integral part of its strategy. The FF scheme is just one part of the loyalty game.

Now in part it may come back to QF Group having an each way bet with the way it has set up its activities across two airlines, various cost centres, etc, etc. Thus Jetstar is part of QF when it suits (eg. selling full priced codeshare tickets on JQ metal) and not when it doesn't (eg. paying staff less, not honouring points/SCs even with a QF flight number on JQ metal).

With the FF scheme set up as a different cost centre (whatever you want to to call it) one may presume that QF airline will try to maximise its revenue from the scheme when its seats are redeemed via the FF scheme. This may artificially inflate the cost of a redeemed seat on the books. QF airline will also want to "purchase" points at the least cost to encourage customer loyalty.

Now the double whammy is that the customer is likely to lose out on both counts since QF wants cost of giving away points to be minimum and revenue from a redeemed seat to be maximum. Thus customer will tend to earn least points and have least access to redemption opportunities (or have to part with huge amounts of points).

The stupid thing is that it's all still part of QF - the management and accountancy gurus have freely chosen to set the system up this way. BUT in the course of it all, the baby can get thrown out with the bathwater because the VALUE put on a redeemed seat no longer relates simply to yield management, but also to however the values are set for the game of defining costs/revenues and liabilities between the airlines and the FF scheme. Somewhere in the middle, the loyalty customer is being squeezed in the balancing act. The simplistic concept of the FF scheme as a loyalty driver using unsold seats become overtaken ages ago...

[medhead]

Originally Posted by Platy

Looking at the part of your quote in bold/italics, I would note that however these things are defined it would surely be questionable business practice for QF (the airline) not to champion "customer loyalty" as an integral part of its strategy. The FF scheme is just one part of the loyalty game.

I almost totally agree with you observations and conclusions about how things are operating. My one uncertainty is about who is the customer loyalty champion. Ideally, it should be an integral part of QF group strategy. However, I'm not confident they see it that way. I'm inclined to think they have put responsibility onto the loyalty program, which goes someway to explain what is happening as you outlined. IMO.

[Platy]

Originally Posted by medhead

I almost totally agree with you observations and conclusions about how things are operating. My one uncertainty is about who is the customer loyalty champion. Ideally, it should be an integral part of QF group strategy. However, I'm not confident they see it that way. I'm inclined to think they have put responsibility onto the loyalty program, which goes someway to explain what is happening as you outlined. IMO.

You may have hit the bullseye with that summation, Medhead!

As a customer I personally find some situations hard to fathom (like Chooms being left in Y when there where empty J seats available just before the flight) and get the feeling that QF senior management has lost touch with its customers in some regards. The customer experience is at the mercy of a mish mash of cost centres, processes and systems, which sometimes deliver, but also sometimes don't. One feels that they need to take a step back, take a good look at the whole picture and get back to some basics. A customer loyalty champion would be great for that (if they don't have one) (as would a brand champion, as brand/products are blurring, but that's another story).

I suspect that in an effort to be "smart" some obvious stuff is falling through the (ever widening) cracks.

In the meantime, I, like many others, attempt to understand the system's strengths and weaknesses sufficiently well to adopt strategise for own personal benefit.