It’s no secret that loyalty programs are normally big money spinners for airlines. Qantas is no exception. But throughout 2020, fewer big businesses were buying points, and fewer passengers were redeeming them. All the while, Qantas Frequent Flyer members kept on accusing points at a rapid clip. So much so, that Qantas now has an AU$3 billion (US$2.35 billion) deferred revenue liability to cover those accrued points.
A frequent flyer program with an impressive reach
At the end of 2020, the Qantas Frequent Flyer program had 13.5 million members. That might pale in comparison to say, Delta’s 92 million SkyMiles members. But what impresses about the Qantas program is its reach. Around half the Australian population is a member of the Qantas loyalty program. In the last six months of 2020, Qantas Loyalty tipped US$355 million into the airline’s coffers. That is despite limitations on travel redemptions and a 10% decline in total credit card spending on Qantas points earning credit cards.
“Our members have continued to earn,” said Qantas Loyalty CEO Olivia Worth at an investor’s briefing last week. “Two-thirds of all points are earned on the ground. With no international flights, they haven’t been able to redeem.”
Qantas expects demand for seat redemptions to increase significantly once people start traveling again. While international flying at Qantas remains largely grounded, domestic flying is regaining ground. Qantas expects its domestic services to run at 80% of 2019 levels this quarter.
“As soon as borders reopen, we do see significant takeup of redemption seats. We do expect that will happen when we get more certainty, both domestically and internationally.”
Qantas says right now, 50% more domestic seats than usual are available for redemption. The airline is also discounting redemption rates on certain routes, such as between Sydney and Melbourne.
Qantas says it’s done well generating cash for points
Getting frequent flyer members to redeem points is one way to help reduce that multi-billion-dollar deferred revenue liability at Qantas. The other way for Qantas to sell points. That’s a tougher ask now than normally. Qantas argues selling AU$450 million worth of points in the last six months of 2020 is a good achievement, considering the wider environment.
“I think a lot of airlines would love to have six months or (AU)$450 million cash contribution of loyalty points being sold,” said Qantas Group CEO, Alan Joyce at the briefing.
Big points buying customers include credit card companies, banks, insurers, even wine stores. Qantas points earning credit cards hold a 36% market share in Australia. While the credit regime is very different in Australia to say, in the United States, generous sign-up bonuses are common.
Prolonged periods at home in 2020 have boosted online shopping. Qantas can cleverly direct its frequent flyers into their own online mall, where hundreds of well-known retailers all offer the opportunity to accrue points if you shop there. One of the big success stories is Qantas Wine. Revenue there was up 74% in the last six months of 2020. No doubt that was helped along by lockdowns. The frequent 10,000 and 15,000 bonus points for buying a case of cabernet didn’t hurt either.
While most frequent flyers aren’t flying, there’s still plenty of activity on Qantas frequent flyer accounts. Qantas is keen to promote as much redemption activity as possible, whether via seat redemptions or elsewhere. Qantas accepts the inevitability of the multi-billion deferred revenue liability, seeing it as a byproduct of the travel downturn. Nonetheless, the airline remains keen to covert that multi-billion-dollar pile of accrued points into cold hard cash.
Wow: Virgin Australia Sells 71,000 Domestic Tickets In 24 Hours
Virgin Australia experienced one of its busiest days of domestic ticket sales in 20 years just after the Australian government’s A$1.2 billion (US$920 million) stimulus package went into effect. The enthusiasm was sparked by half-price flights offered on subsidized routes, which included flights to the Gold Coast from the cities of Melbourne and Sydney, among others.
71,000 tickets sold in 24 hours
Within the span of a full day, Virgin Australia sold enough tickets to completely fill over 400 of its Boeing 737-800s (which have 176 seats each). The hottest tickets were for subsidized routes, for which the airline halved its standard prices.
Swept up in the momentum and also experiencing large jumps in ticket purchases were other ‘full-price’ routes, which included Melbourne-Perth, Perth-Sydney, and Melbourne-Sydney.
“The overwhelming response from Australians demonstrates loud and clear that they are ready to get back in the air and travel and are a positive sign for the aviation and tourism sectors as they look to recover from the impacts of COVID-19,” -Virgin Australia statement via 7News.com.au
While Virgin Australia had the record-breaking day, The Islander reports that the country’s other airlines saw spikes in web searches during the same period. Searches for “Qantas”, “Jetstar,” and “Virgin” sharply increased from around midnight Thursday and spiking again at 06:00 Australian Eastern Daylight Time.
The Australian government’s stimulus package
Announced in early March, the government support package includes A$200 million (US$152.6 million) for Qantas and Virgin Australia. Reuters notes that this funding will support the airlines from April to October, with the intent to help maintain mothballed aircraft as well as bring planes out of storage and support wages for international flying staff.
Another major part of the scheme, and the main reason for this story, is the government subsidization of 13 routes. Subsidization has meant that eligible airlines can offer half-price tickets. The impetus for the deal was to support airlines while encouraging domestic tourism at a time when international tourism has been hard hit. According to The Guardian, the routes are as follows:
- Sydney: flights to the Gold Coast, Cairns, Proserpine, Hamilton Island, Maroochydore, Uluru, Alice Springs, Launceston, Broome, and Avalon.
- Melbourne: flights to the Gold Coast, Cairns, Maroochydore, Alice Springs, Uluru, Launceston, Devonport, Burnie, Broome, and Merimbula.
- Adelaide: flights to the Gold Coast, Maroochydore, Alice Springs, and Kangaroo Island.
- Brisbane: flights to Alice Springs, Uluru, and Launceston.
- Darwin: flights to Cairns and Broome.
- Perth: flights to Alice Springs.
- Avalon: flights to the Gold Coast
The half-price fares were made available on April 1st and will continue to be offered until the end of July.
Hope for the best, plan for the worst
One key concern when it comes to domestic flight bookings is the ever-present risk of interstate border closures in the event of an outbreak during this global health crisis. While it’s hard to resist a good deal, it’s also wise to consider the possibility of such unwelcomed restrictions. Having flight bookings with flexible re-booking and cancelation policies will help greatly if such restrictions arise.
Were you a lucky Australian resident who managed to secure a half-priced flight? Or did you try and miss out? Share your experience with us in the comments.
US Congressmen Call On DOT To Deny Norse Atlantic Airways Permits
The Chair of the US House Committee on Transportation and Infrastructure, Peter DeFazio, and Chair of the Subcommittee on Aviation, Rick Larsen, have called on the US Department of Transportation (DOT) to deny permits for Norse Atlantic Airways to fly to the United States, citing concerns about the airline.
Members of Congress on Norse Atlantic Airways
Rep. DeFazio, a Democrat from Oregon, and Rep. Larsen, a Democrat from Washington State, have called on the DOT to deny Norse Atlantic Airways Operating permits on account that it is flouting labor protections.
Drawing on earlier language indicating opposition to the airline, Reps. DeFazio and Larsen have argued that, by organizing itself in a country outside of Norway, where there are strong labor laws, the airline is seeking to flout those laws.
Drawing strong comparisons with Norwegian
The two Congressmen believe the airline is doing this because one of its executives was a former executive at Norwegian, which used Irish and UK subsidiaries to operate long-haul low-cost flights between the US and Europe.
In the letter, the Congressman stated the following:
“Their long-haul low-cost business model was predicated on the use of pilots and flight attendants employed under short-term contracts and assigned to the Norwegian subsidiaries via third-party crew sourcing firms. In short, Norwegian exploited labor while enjoying the liberalized benefits of the U.S.-E.U.-Iceland-Norway open skies agreement and competing unfairly with airlines that do not subvert fair labor standards.”
Using Norwegian as a warning
The letter also urged the DOT to consider that Norwegian failed in its transatlantic operations. Between 2016 and 2019, the letter states that Norwegian incurred debt of nearly $7 billion.
Norwegian is currently under bankruptcy proceedings in Europe and has decided to shut down its long-haul routes and focus on its flights within Europe.
Norwegian made a huge splash when it started transatlantic operations in 2016 between the US and Europe. Using a fleet of mostly Boeing 787 aircraft, the airline brought large numbers of customers across the pond.
Norse Atlantic Airways has already indicated it will operate a similar model, using Boeing 787 aircraft it has signed leases for.
US airlines breathed a sigh of relief
When Norwegian came into the transatlantic market, it followed its initial routes with plenty of growth. That growth put pressure on US airlines.
Now, without Norwegian in the market, airlines are breathing a sigh of relief. Without that low-cost competition in the market, airlines like United are bullish on their international exposure. Without Norwegian in the market, there is also room for plenty of existing airlines to move toward higher-yield transatlantic operations.
The return of transatlantic demand will depend greatly on the removal of travel restrictions between the US and Europe. Most airlines are focused on cargo with low passenger loads on flights to Europe currently. Only essential travel is permitted between the two areas.
Norse Atlantic is a startup to watch. It has the opportunity to massively grow to the size of Norwegian’s long-haul operations before it shut down, but doing so may come at a high cost and low profitability. It will have to make the long-haul low-cost model work to be successful.
For now, it is a waiting game to see how the DOT will respond to Norse Atlantic. US Congressmen are coming down on the side of the US airline industry, but the DOT may end up granting Norse Atlantic operating permission.
Do you think Norse Atlantic Airways should be allowed to operate between the US and Europe? Let us know in the comments!
Frontier Launches IPO – How Can The Airline Benefit?
American ultra-low-cost carrier (ULCC) Frontier Airlines has officially gone public. Pricing out at the lower end of its target share price, the airline is still expecting to raise over $200 million from the endeavor. Here is a look at how that could benefit the airline.
Frontier’s initial public offering pricing
Frontier Airlines announced its initial public offering of 30 million shares at a price of $19 per share. This was toward the lower end of the initial pricing for Frontier’s shares. The share consists of 15 million shares of commons tock offered by Frontier and 15 million shares of common stock to be sold by certain of Frontier’s existing stockholders.
Less the underwriting discount, commissions, and estimated offering expenses, Frontier will net proceeds of approximately $266 million. The sale of stock by the existing stakeholders will not raise Frontier cash. Overall, the net proceeds to both Frontier and the private stakeholders is expected to be over $500 million.
The airline is being traded on the Nasdaq Global Select Market under the ticker “ULCC.” Since going public, the airline’s stock price has hovered between $18 and $19 a share.
The net proceeds
The amount that Frontier expects to receive is around $266 million. This is a respectable amount similar to the funding another airline IPO, Sun Country, received.
With $266 million, the airline can do plenty of things. Frontier ended 2020 with long-term debt of over $300 million. The airline can choose to pay down some of its high-cost debt with these proceeds. Or else, the money can be used to fuel expansion. The airline sees plenty of growth opportunities and has a sizable aircraft order book which costs money, and this funding can go a long way.
The current state at Frontier
Frontier Airlines is one of the carriers leading the way with capacity increases through the year. The airline’s top stations are Denver, Orlando, and Las Vegas. These are major leisure travel hotspots, but some of them also provide opportunities for Frontier to sell connecting flights.
Frontier serves over 300 nonstop routes touching around 110 airports. Using a low-frequency model, the airline targets mostly point-to-point leisure travelers.
Frontier also sees plenty of room for growth. In the airline’s initial filing for an IPO, the carrier highlighted it had an opportunity to serve 518 additional domestic routes between airports within its existing network not currently served by a ULCC. This is a fascinating number, but it also raises the question of Frontier’s expansion.
In the past, Frontier has not been very hesitant in terms of adding new cities and then cutting them if those flights do not provide the anticipated financial benefits. Moving forward, Frontier will face shareholders and stockholders that may temper some of those ambitions, but the carrier is still expected to add new routes. This is especially true as signs continue to point toward a summer surge, and the CDC outlines guidelines for vaccinated Americans to travel.
The airline is already making moves to become a more modern, fuel-efficient carrier with an eye on costs. The aging and comparatively expensive Airbus A319s will exit the fleet this year as the airline welcomes newer Airbus A320neo family aircraft. Those new jets will also feature lighter-weight seats that will save on fuel, which in turn saves on Frontier’s costs.
Ultimately, Frontier has set itself up to do well in the future. The net proceeds from this IPO will go a long way in getting Frontier the cash influx it needs to survive the next few months and prepare to handle the increase in passengers expected over the summer. As the US airline industry starts to turn the page on the crisis, Frontier is expected to be one carrier that benefits early on from its mostly domestic and short-haul international leisure-oriented model.
Do you think Frontier made the right decision by launching an IPO? Let us know in the comments!
Cheap ticket deal breaks Virgin’s all-time record, despite lockdown
Virgin sold more domestic tickets on the launch day of the government’s half-price ticket scheme than on any 24-hour period in its history.
The result came despite fears Brisbane’s recent snap lockdown, which ended on Thursday, would put people off interstate travel.
Domestic aviation has been pinning its recovery hopes on the federal government’s plan to supplement 800,000 half-price airfares for passengers to 15 destinations including the Gold Coast, Alice Springs and Kangaroo Island. It follows the end of JobKeeper last week.
Virgin said in a statement it sold 71,000 supplemented seats in the 24-hour period from 12:01am on 1 April. The top five routes were:
- Melbourne to Gold Coast
- Gold Coast to Sydney
- Maroochydore to Melbourne
- Cairns to Sydney
- Adelaide to Melbourne
Destinations not in the scheme also received a “significant boost”, in particular, Melbourne to Perth, Perth to Sydney and Melbourne to Sydney.
“The overwhelming response from Australians demonstrates loud and clear that they are ready to get back in the air and travel and are a positive sign for the aviation and tourism sectors as they look to recover from the impacts of COVID-19,” said the business in a statement.
“As a sign of renewed confidence and pent-up travel demand for travel, more than 85 per cent of the new bookings have been booked for travel from May onwards.”
Greater Brisbane lifted its snap lockdown on Thursday at noon, following the state recording just one new case of community transmission.
Queensland Premier Annastacia Palaszczuk did though announce a slight increase in restrictions, which will require residents to wear masks indoors and a limit of indoor gatherings to 30.
The good news came shortly before NSW announced no new local infections across the state, too.
The half-price ticket scheme saw Virgin announcing fares from just $55 between Melbourne-Launceston and Jetstar offering tickets from just $32 between Adelaide and Avalon.
The updated list of destinations now includes Cairns, Townsville, Whitsunday Coast/Hamilton Island, Sunshine Coast, Darwin, Alice Springs, Hobart, Launceston, Devonport, Broome, Avalon, Merimbula, Adelaide, Kangaroo Island and the Gold Coast.
The fares are on sale until the end of July for travel until the end of September, with discounts applied automatically.
Both airline groups have also topped up the 15 locations with sales to other destinations and also extended fare flexibility in light of recent uncertainty.
The package of measures to support aviation in Australia also includes a new wage subsidy for those working in international aviation; cheap loans to small business coming off JobKeeper; and a six-month extension of the ‘RANS’ and ‘DANS’ supplemented routes initiative.
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