If Qantas does go private - what will the new owners do with the frequent flyer program?
When frequent flyer programs became popular in the 80s in the US and 90s in Australia it was seen by airlines as a means for reducing price competition. The hope was that you would lock in a customer in such a way that it would take significant price differences for them to shift to another airline. The advantages were obvious. The disadvantage was that it also made customer acquisition a little harder. Pretty soon every airline had a program up and running, it made it easier for each Airline to retain it's customers but harder to steam customers from another airline. If Airline A wanted to steal customer from Airline B it had to drop its prices dramatically or carry over the tier status of the customer to convince the customer to abandon years of miles and free booze in the lounge. Frequent flyer programs in competitive markets began to lock in the market shares of the players - strangely enough reducing competition. You can read more about this fascinating phenomenon in the book Thinking Strategically.
In Australia Qantas does not have this problem as it killed off its main frequent flyer competitor - Ansett Airlines. Virgin-Blue has just recently abandoned the Low Cost Carrier "code of conduct" that prohibits frequent flyer programs and launched one (Velocity) in late 2005. However the gap between the death of Ansett and the launch of the Velocity program allowed Qantas to not only grow its program dramatically but establish the Qantas Frequent Flyer program as the dominant rewards program in Australia. All airlines have made money selling/sharing points with alliance partners and other travel providers (hotels, cars etc) but Qantas have turned it into an art form allowing partners as diverse as real-estate agents, financial services providers, retailers, wine clubs, telecoms companies and more to buy points/miles and provide them to customers. It became possible to rack up hundreds of thousands of miles needing to eat a single airline meal.
There is now enormous financial value in the buying and selling of miles for Qantas (and other airlines). Canadian airlines actually spun off its whole frequent flyer program in July 05, Aeroplan, a business that is valued at the time at CAD$2bil (now about $900mm) based on 4.8mm members.
With the plan to privatise Qantas, questions are being raised about whether or not the soon to be new owners will want to spin off parts of the company such as catering, cargo and the frequent flyer program. Qantas are assuring their frequent flyers that it is "business as usual" including sending out a dedicated email to that effect. But with a value range of AUD$400mm to $2 billion (Australian newspaper article) it is almost certainly at the top of the list for the consortium that will be sitting on a debt pile in the AU$10billion range.
So - should you rush off and book your frequent flyer seat? The answer is yes - but not because Qantas may spin off the program. The answer is yes because there are simply too many frequent flyer miles in the world - including Australia. It is inevitable that over time the value of a frequent flyer mile will decline. Qantas re-valued the program about a year ago making it more expensive to buy international flight. They re-wrote the program in 2000 converting from kilometres to miles (effective 38% devaluation). AND - it costs of hundreds of dollars per "free" ticket.
As the Economist stated more than a year ago - it is like the printing of a currency by a failing state - the more the print, the less the value. So the more miles that Qantas sells into the market the more regular will be the "updating" of the program to find ways to reduce the value of miles. There is no need to use up miles just because of the sale of Qantas but my standing order advice is have to use up your miles on a regular basis. The winner is the person who had the most holidays not the one that dies with the most miles in the bank.
Here is a great post from a finance blog about other frequent flyer valuation activity in the US