We all know frequent flyer schemes are designed to reward you with free flights and other perks for your brand loyalty. They do this by trying to keep you spending within their scheme so that you can earn rewards. The truth though, is that you will need to spend vast amounts more than the value of the rewards you become entitled too from the airlines.
One of Australia’s leading financial comparison websites, Creditcardfinder.com.au, conducted research aimed at uncovering the truth behind these schemes to find out whether they do actually offer good value or not. In the report containing their findings, 41 personal credit cards that collected either Qantas or Velocity flyer points were evaluated. The findings, which to many wouldn't have been that surprising, suggested that instead of rewarding you, they may actually be burning a hole in your pocket.
Michelle Hutchison, money expert at creditcardfinder.com.au tells us that there is no secret about Australians who love something for nothing. Especially when credit cards are concerned. Although, upon casting her keen eye over frequent flyer schemes, she was quick to point out there’s more (or arguably less in this case) to them than first meets the eye.
Credit cards from these kinds of schemes promise the world, such as Qantas or Velocity who offer points for every dollar spent. As these points accumulate, the hope is that you can offset them against the cost of flights, gift cards and even receive free flights altogether.
After the 41 credit card reward programs had been analysed, it turned out that the amount of money spent versus the value received was not particularly good. To receive a Myer gift card worth $100, for example, a customer would need to spend a total of $21,961. This research was based on using a VISA or MasterCard credit card to earn points for Velocity of Qantas. But, bear in mind that this expenditure doesn’t include annual fees, which cost on average $204 and can be as much as $700.
In most cases consumers are better off cashing in their points against flight costs. This provides far better value for your points. The only trouble is, cheaper airlines charge considerably less for flights. So ultimately, you would often tend to save more money simply flying with a cheaper airline than if you used all your points to reduce the cost of a flight on either or the two afore mentioned airlines.
“To get any value back from these cards, you need to spend a minimum of $15,179 per year,” said Mrs Hutchison.
If you have an Amplify Classic credit card from either St. George Bank, Bank SA or Bank of Melbourne, this would provide the best value for the lowest spend. Finder stated that this is directly related to their low annual fees of $79. So in total, to begin receiving value back from these cards, you need to spend $15,100, plus the annual fees of $79, to receive the $100 gift voucher. This would in effect give you $21 of received value.
The cheapest way to earn value from these schemes is the NAB Qantas Rewards American Express card. Here you would need to spend $15,165, to which you'd add an annual fee of $65 and you’ve earned your $100 gift card. Ultimately giving you $35 of value.
Which One Provides the Most Value?
Mrs Hutchison went into detail to explain which cards would work out best if you were to spend wisely. For example, if you spend $3,000 per month on your card ($36,000 p/a) the best value card would be the Amplify Classic credit card from St George Bank, Bank SA or Bank of Melbourne. This is because you would earn two $100 gift cards, minus your $65 annual fee, to equal a $135 of value received.
For American Express frequent flyers, if you were to spend the same amount ($3,000 p/month), then you would get the best value from a Qantas American Express Discover card. With this card you be rewarded with $200 of gift vouchers, but due to the absence of annual fees, it would appear that you get to keep $200 of value. What you need to be aware of though, is that you'll need to buy a Qantas membership which allows you to earn the points. This in turn costs $89.50, resulting in your net value received totalling $110.50.
Tom Godfrey from Choice (a consumer advocacy group) warned that rewards programs are mostly designed in a way to trick consumers into not shopping around for better deals. This is achieved by making them believe that they're getting the best value for money and biggest savings long term when keeping their expenditure within a flyer scheme.
“Big brands like them because they lock consumers into their retail networks and they are extremely profitable,” explained Mr Godfrey.
What these types of schemes represent in reality, is generally in contrast to our objectives on Buckscoop - which include showing our community how to uncover the hidden value behind offers as well as knowing which are genuinely good value and which are just over-hyped marketing/sales pitches of little substance. From the findings of the report discussed above, it seems to be clear that a substantial outlay is required before any sort of meaningful reward from these schemes is achievable. This, by Buckscoop's definition, does not offer customers good value for money in the true sense of the word. As such, our advice is to rather shop around for cheaper flights than bend your schedule and extend your budget in order to accommodate these often less-than-accommodating frequent flyer schemes.