The following is an interview with Simon Hickey, Executive General Manager Loyalty of Qantas, conducted by Isabelle Oderberg of Business Spectator. You can read the full interview at http://www.businessspectator.com.au

Isabelle Oderberg
Traditionally, loyalty programs have been about leveraging brands and rewarding customers. Can you please tell me a bit about how the program actually generates revenue?
Simon Hickey
What we do is we have exclusive arrangements with Qantas and Jetstar in relationship to access to some of their capacity, so we buy seats from them. And when someone flies with Qantas, we defer a certain amount of our revenue and so when they redeem, that revenue becomes profit in our books. So, the accounting rules make you defer a portion of the revenue so it becomes profit in our books when a redemption activity occurs. The other thing we do is, of course, we have commercial arrangements with our 350 partners which is good for our members and it’s good for our business because what we do is we effectively sell points, so partners can allocate those to members or they can be provided to our members when they shop with them, so it’s part of the market mix for those 350 partners.

IO
So you’ve got 350 partners currently. How much do you think that number will expand over the coming perhaps months or years?
Hickey
Well, that’s hard to say, but we already are a significant coalition program, which means that by members looking at where they shop, they can actually earn faster to get to good reward levels and we would expect that we would want to continue to expand that range and we’re talking to a lot of people right now in all major categories that spend to bring them on over time as partners in the program. That means that our members, or people who become our members, can get rewarded by looking at where they shop across among more and more categories of where they spend money, just in every day spend in major purchase items, etc, so it can go across everywhere where people effectively spend money.

IO
Is the business reliant on Qantas? As an independent entity, if that relationship were for any reason to break down, if Qantas didn’t maintain its stake after the spin-off, would that be detrimental?
Hickey
No, no, we’ve got an enormously close relationship with Qantas, obviously, and that goes to history and parentage, as well as ongoing relationships which are incredibly strong, but we’re a business at the moment within an airline, not an airline business, which is something I keep on saying. What that means is that the majority of our revenue now comes from other partners, not from Qantas, so most of our revenue streams are external to Qantas. In fact 65 per cent of our revenue comes outside of Qantas. And so, we’re a very strong business, but whether Qantas is there or isn’t there, but we know that we’ve got a very long term relationship with Qantas. We’ve got very long term contracts with Qantas and that relationship is incredibly important to us. It’s a contractual relationship as well as an ownership relationship at the moment. If you looked internationally, there is an example in Canada where Air Canada’s loyalty program Aeroplan is completely separated from the airline and I think that works very effectively for both those companies.

IO
What are the duration of the contracts you currently have in place with Qantas?
Hickey
Well, 20 years. So that’s pretty long term. (Laughs)

IO
Yes, that’s fair. (Laughs) Now, Groupe Aeroplan which you just mentioned, how does the Qantas program compare? Where are the similarities or differences?
Hickey
Well, I think that the similarities are that they came out from Air Canada, so they were born from a frequent flyer program within an airline and the second thing is that they’ve got over, I think it’s around 200 partners, so they’re a large coalition program as well in Canada and they’ve been growing very significantly over the last number of years, particularly since they sort of separated and went down the track of looking at expanding their partnership base and that’s been really, really good for their members because they can earn in so many more places in where they spend and it’s been really good for that business. So, I think there are a lot of similarities in how the two businesses work. Personally, I think that Qantas our partner airline is a stronger airline, it’s a terrific airline within this country, it has such a great network and both domestically and internationally that we’re in such good shape by having Qantas as our partner airline. It gives such strong fundamentals to start with.

IO
But Qantas is going through some tough times at the moment…
Hickey
Oh, it is, but still as an airline and as a brand, it remains as a very significant airline and it remains as a very, very strong airline, so those tough times periodically they come and they go, but over the period of 20 years that is the partner airline that you would want to have.

IO
Have you spent time with Group Aeroplan at all? Have you visited their offices and spoken to management?
Hickey
Yes, I have. I’ve met with Rupert Duchesne, who is the CEO of Aeroplan, and I’ve got an enormous amount of respect for what they’ve done there. I’ve met with them on several occasions to talk about their business model and what they’ve done. You know, I’ve gone around the world and talked to various different loyalty programs. I’ve spoken to a coalition program called Nectar in the U.K. I’ve looked at Tesco’s program as well, so you want to look at what other people are doing around the world and learn what works and what doesn’t work and then bring it back to Australia and apply it to this market to try and get the best you possibly can for your members here.