QF+VAThis is a General Guide
The cost of a frequent flyer point
The key to getting the most value out of your frequent flyer points across the main programs, is understanding two things:
In this guide we look at the real costs involved in acquiring points.
In theory, when the cost of a frequent flyer point is less than its redemption value (as appraised by you), you’re in front. This is the first of a two-part guide. Click here to launch the second, which looks at placing a value on the product or flights that you redeem.
Point cost overview
To kick this section off, we’ll look at a common misconception – that points are ‘free’. Sometimes they may be close to free, but generally, there’s always some sort of cost involved. For example, you may assume that bonus point promotional offers, or points earned on work-paid flights are ‘free’. However, many argue that there are costs associated with these methods.
Regardless, the acquisition of points generally requires financial outlay.
flyerpoints.com.au point cost estimate
As explained via the examples below, we place an approximate cost of around 1.1c on a Qantas or Velocity Point. This may be a good starting point as a general guide to using your points (ensuring you are redeeming them for over 1.1c). Of course, this is only a ballpark figure – everyone will acquire points at different costs. This approximation does not take into account your individual situation or spending behaviours.
You should always try to place an approximate value on the costs involved in earning points across all major programs. To calculate the cost of a frequent flyer point, simply use the following formula:
Cost = ( (Cost / Points Received) * 100 )
Point cost examples
Let’s look at some everyday examples to help you determine your actual costs of acquiring a frequent flyer point.
Example 1: Rewards credit card
Let’s look at some major direct costs that are present when spending on a rewards credit card to earn frequent flyer points at the following characteristics:
- Points earn rate = 1 Qantas point for every $1 spent
- $100 annual fee
- Spend $20,000 annually (which attracts an average credit card surcharge of 0.7%)
|Credit card surcharge||0.7% of spend||~ 0.7c/Point|
|Annual fee||$100||~ 0.5c/Point|
To calculate the annual fee’s cost per point, we divide the annual fee by the total annual amount spent on the card (as we’re earning 1 point per $1 spent).
In this case, the cost of a Qantas point earned is about 1.1c/point. In this hypothetical, you would need to redeem your Qantas points at a rate of over 1.1c/point, otherwise you’re losing out! At this rate you’d definitely want to focus on flight redemption opportunities, and avoid redeeming your points for gift cards within the eStore (for example gift cards at a GRV of approx. 0.5c/point).
Example 2: Supermarket loyalty points frequent flyer transfers
Another example is your ‘opportunity cost’ of converting points earned through your supermarket loyalty scheme to its frequent flyer partner (Qantas with Woolworths Rewards and Velocity with Coles flybuys). Specifically, this takes the form of the automatic shopping discounts you would have received if you had not opted-in convert your points to your frequent flyer program. To put it another way, you’re giving up this easily realisable benefit to convert to frequent flyer points.
Both supermarket loyalty programs allow you to convert 2,000 loyalty points to their respective airline partner to receive 870 frequent flyer points. The true cost is what you give up in doing so, which is $10 off you shopping. This values your 870 frequent flyer points at $10.
|Convert to FF Points||Opp. Cost||Cost/Point|
|Opportunity cost of conversion||870||$10||1.15|
I this case, the cost of a Qantas or Velocity Point earned is 1.15c/point. Again, you’d need to redeem your frequent flyer points at a rate of over 1.15c/point – so no gift cards here, either!
Example 3: Bonus point promotions
Many financial products, shopping promotions and the airlines themselves, regularly offer frequent flyer points as part of special promotions. These may be offered as a marketing initiative subject to the purchase of a particular product, or directly, where frequent flyer points are sold at a discounted rate. There’s a very easy way to calculate the costs involved here, which is explained in the following example.
Note, this is an illustrative example only. It does not contribute to our approximate ballpark ‘cost-of-a point’ guide.
- Number of frequent flyer points for sale: 70,000
- Cost of points: $700
|100,000 Points Promotion||$500||1.0c/Point|
In this case, the cost of a Qantas point earned is 0.5c/point.
And just a side note. Sadly, Velocity and Qantas Frequent Flyer do not offer points available for discounted purchase. They do allow limited ‘top-up’ points bundles, however these are expensive. Many overseas frequent flyer programs do offer points-buy promotions, which is why we’ve included this example.
This is the first of a two-part guide. Click here to launch the second, which looks at placing a value on redeeming frequent flyer points.