Jetstar, now offering Qantas frequent flyer points, strikes Virgin et al

QFF cards.jpgMuch news lately has been about Virgin Australia’s move upmarket to capture more of the corporate sector, but a quieter story is what is happening to the portion of the leisure market Virgin will have to give up.

The latest development is today’s announcement that Jetstar has a new fare class option that will enable passengers to earn Qantas Frequent Flyer points and elite bonuses. Previously only the top-tier Jetstar fare earned status-only points and status credits.

The move is part of the carrier’s overhaul of its fare structure. Gone are JetSaver Light, JetSaver, JetFlex, and JetPlus. Now domestic fares start at the “Starter” level, which is the old JetSaver Light, while international business fares start at the “Business” level. Passengers can add a “Plus” or “Max” bundle to both fares (yep, no free perks in business). “Plus” offers Qantas points and no fee changes (except for fare difference) and “Max” offers the same plus reservation of premium seats (front row and extra room seats) and more flexibility. Neither include checked luggage. On a Melbourne-Sydney flight, the “Plus” package is an extra $25 and “Max” an extra $250. The “Max” offering is similar in price to Tiger’s recently introduced flexible option. To Perth, “Plus” is an extra $40 and “Max” $410. While the addition of the bundles will see Jetstar’s fare sometimes surpass Qantas’, the Jetstar fare will offer more flexibility over Qantas.

Jetstar will see more ancillary revenue in its choice to adopt Tiger and AirAsia’s baggage model offering different weight allowances (15, 20, 25, 30, 35, and 40kg), and also charging each weight based on distance instead of its previous flat fee. Checking 20kg from Melbourne to Sydney costs $10 while to Perth it is $15, prices significantly cheaper than on Tiger. (See this chart for how much it costs to check a back in the region.)

The reckoning seems to be that with Virgin offering a higher-value product, Jetstar needs to catch up while also positioning itself more ahead of Tiger. As Qantas chief executive Alan Joyce said when announcing more aircraft for the Group’s low-cost sister, “We see great opportunities for Jetstar, particularly in the domestic market as our competition changes their focus…It is an opportunity Jetstar is seizing.”

The move gives greater value to Jetstar’s product compared to Virgin and Tiger domestically, Virgin’s possible partnership with FlyBuys, and the likes of AirAsia X and other long-haul Asian carriers with a lower cost base. Also, AirAsia is considering launching its own frequent flyer programme. Plus, offering frequent flyer points as part of a fare package gives further ancillary revenue, critical in today’s air transport finances.

Some LCCs offer free frequent flyer points, notably in America, but there have been dabbles with putting a monetary value on frequent flyer points as part of tickets. Air Canada, for example, offers a variable discount on the fare if passengers elect not to earn frequent flyer points. On a Calgary-Toronto flight, about the same length of a Melbourne-Perth flight, Air Canada offers a C$3 (A$2.93) one-way discount off its cheapest fare if a passenger does not want frequent flyer points. Other airlines, such as Malaysia Airlines, offer tiered basic economy fares with the upper levels offering more frequent flyer miles as well as increased luggage allowances, but few have so basically offered frequent flyer miles for only a small increase on ticket price.

The move also supports the growing convergence between Qantas and Jetstar. Although there is a “two brand” strategy at Qantas, it is increasingly clear the newer brand, Jetstar, is pushing to be a Qantas done more cheaply. That is not a low-cost carrier per se, but rather a Qantas clone stripped of its high cost structure. Jetstar, a branded way of saying Qantas Mk II, offers a Qantas-like service–meals, IFE, frequent flyer points–for a price, while maintaining cheaper prices. (Cue the Jetstar ad: low fares, GOOD TIMES!)

Offering frequent flyer points may also placate complaints that portions of the Qantas mainline network are being taken over by inferior Jetstar, such as at the Gold Coast, Japan’s Osaka, Auckland-Singapore, and future 787 routes (such as to Athens and Rome). Already the Qantas Group is placating oneworld members by offering them access to Jetstar fare inventory with the promise their full-service passengers will receive on Jetstar a luggage allowance with food and beverage service.

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