Q+A: Why Australians are hooked on points

[upbeat music] Welcome to Fear and Greed Q&A, where we ask and answer questions about business, investing, economics, politics, and more. I'm Sean Aylmer. Australians love frequent flyer points. Qantas Frequent Flyer alone has more than 18 million members. But frequent flyer programs have evolved from marketing tools designed to keep travelers loyal into enormous commercial ecosystems, with points increasingly behaving like a kind of currency. David Maloney is a management consultant, loyalty expert, and author of the forthcoming book, "Points: Mastering the Game of Frequent Flyers." David, welcome to Fear and Greed Q&A.

Sean, it's great to be with you. I'm a huge fan of your work, so thank you for your time.

Thank you very much. Up front, what is the business model, and let's use Qantas Frequent Flyers, the 18 million members. What is the business model? Where's the money come from? Why is it so valuable to Qantas?

Well, I think it's evolved in three major phases. You know, the first, uh, is the more obvious one, which is those unused seats. You know, how do I, uh, treat an ephemeral good and give, uh, what's costing me very little away, uh, in a way where it's perceived to have very high value in exchange for ongoing loyalty from a, a customer? Uh, we then move to a model where those points and the outcome that it creates for the customer, that experience, you know, the, what I call joyalty in the book, uh, that becomes so attractive that customers want more and more of those points, and they'll seek them from, uh, places other than from flying with that airline. And, you know, this is the sort of second major, uh, evolution of the points ecosystem. Uh, and at, uh, that juncture, uh, mostly banks, uh, but also now retailers start buying those points, uh, on behalf of their customers as a reward for loyalty to their businesses, not to the [laughs] airline, but to their businesses. And of course, this is a second era is where, you know, Qantas and all the other world's major airlines, you know, re- really, uh [laughs] got very excited about the future economic prospects of the business. Uh, and then of course, uh, COVID, uh, was this wonderful Darwinian moment where, you know, we could have seen, uh, you know, the end to, uh, aspects of flying, uh, and points. Uh, but instead, uh, we saw this incredible terrestrial evolution, uh, where we can now earn points through almost any behavior on the ground. Um, and so the points economies, uh, expanded, uh, even more broadly from, uh, you know, pet food to, uh, to having your teeth fixed.

So essentially, Qantas makes money because some other organization, some other business pays them money to take on points. That's fundamentally how they make the money, Qantas?

So they sell their points to those businesses, and they sell seats to other airlines as well. And so, um, yeah, they're the two major sources of external revenue. Uh, but of course, they, they also have empty seats, uh, which they're, you know, selling, uh, in exchange for, uh, value from their customers. So yeah, there's a broad range and increasing pseudo currency that's being created, uh, in that, in that points game.

Yeah, I mean, you talk