Qantas Frequent Flyer International Investor - Qantas | Investors

Qantas Frequent Flyer International Investor - Qantas | Investors

Qantas Frequent Flyer Investor Briefing June 2010 QFF is a successful business with significant value Rewards •Nonreplicable classic awards •Award St...

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Qantas Frequent Flyer Investor Briefing June 2010

QFF is a successful business with significant value Rewards •Nonreplicable classic awards •Award Store 1700+ products •Any Seat to 100+ destinations Billings ($Millions) Direct earn rush

878 FY07

929 FY08

Member Numbers (Millions)

3.4 million seats redeemed FY09

45% Growth

1255 FY09

Shareholder Value

•Majority external billings

EBIT ($Millions)

Positive Working Capital Direct earn rush

Acct Adjustment

FY08

FY09

Partners

5.8

FY08

FY09

Qantas has 65% domestic market share

Current

310 147

128

128

163

FY07

FY08

FY09

Member Engagement Record High

6.9

All major banks •Australia’s leading retailer

7.1

Current

•$2 Billion in deferred revenue

•Qantas and Jetstar

5.3

FY08

FY09

Current

•Breakage at industry lows

2

Business and Value Model Life of a Point ~2 years

Points Earned by Spending

Points Redeemed for Award Points Expire (Breakage)

$25

Margin on Points

$100 Billings

$25m Margin

Marketing Revenue

Revenue Recognition

$5m Margin

Recognises that member chooses to shop with Partner

$75

Includes Breakage

Redemption Revenue* Recognises the Value of award

$70 Award Cost Recognises the Cost of award

$100 Working Capital Benefit

$100 Billings

$2 billion Deferred Revenue

Cash Flow Cash In

Illustration Only

$70 Cash Balance

Cash Out

* After interim period when points in existence on 1 January 2009 are extinguished

3

Financials $ millions

FY08

FY09

1H 10

Billings

929

1,255*

477

Revenue

849

1,133

547

(721)

(823)

(390)

128

310

157

Total Costs Reported EBIT Less: Estimated one off impact of direct earn point ‘rush’ EBIT excluding rush

(84)

[ Billings represent cash received when points sold to partners [ Majority are external partners [ Operating Expenditure [ Cost of awards are variable to redemption volume [ All other costs have economies of scale [ Positive Working Capital

128

Revenue recognition adjustment 128 Deferred Revenue

226

157

(63)

(78)

163

79 >2,000

[ Deferred revenue balance over $2 billion [ Capital Investment [ Investing in market leading CRM systems with Siebel and Oracle

* FY09 includes rush in from direct earn strategy 4

Coalition 420+ Partners

Earn on Qantas and 27 partner Airlines

Earn products at all major banks

Earn points at Australia’s largest retailer

Wide cross section of retail, travel and restaurants

5

Unique and differentiated rewards [ Classic Rewards

3.4 million seats redeemed in FY09

[ 27 Partner Airlines available on Classic Rewards [ Any Seat Rewards

[ Ability to redeem on addition 46 airlines to over 100 destinations [ Points plus pay offered – allows low cost fares [ Store Rewards [ One of the largest online retail stores in Australia [ Choice of over 1,700 products, including over 100 vouchers in Australia

7

6

Value in Partnerships Attrition impact for partners

1

Coalition effect

3 250%

200%

30% reduction in attrition

150%

100%

50%

= QFF Product 1

= QFF Product 2

= Partner portfolio average

0% Partner Only

Partner + 1

Partner + 2

Partner + 3

Partner + 4

Partner + 5

Partner + 6

Spend has increased on tagged accounts by over 5%

2 Customer acquisition impact ANZ Consumer Market Shares

Marketing spend efficiency

4

Google Search Index

*

350

160%

300

140%

250

120% 100%

200

80%

150

60%

100

40% 20%

50

0% Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar- Sep- Jan95 96 96 97 97 98 98 99 99 00 00 01

0 2005

Credit Card Spend Market Share

2006

2007

2008

2009

Mortgage Market Share

Qantas Frequent Flyer

Velocity

Everyday Rewards

Fly Buys

7

* Source : ANZ Investor presentations

Growth Opportunity Share of Wallet Member Retention

Cross selling and up selling within the coalition is the single biggest growth opportunity Credit Card Spend

Track Record [

Existing Frequent Flyer members who linked with WOW saw an increase in travel up 11.7%

[

Over 660,000 seats flown from new QFF members (since Woolworths launch to YTD April). Approximately 50% of these bookings are new customers for the airline

[

Membership penetrates nearly 50% of Australian households with 45% increase in members over last 3 years

[

Australia’s largest retailer Woolworths Group joined QFF as partner

Woolworths & Retail

Qantas Group

Member Acquisition

New partners

Grow membership to 8 million by end FY11

Woolworths billings continues to grow Caltex / Woolworths Fuel to be launched 1H FY11 Multiple tier 2 opportunities exist in the market

8

Appendix

9

First Half FY10 Highlights [ EBIT up 115% at $157 million [ Billings down 8% at $477 million [ Up 1% after adjusting in FY09 for direct earn strategy rush billings

[ Over 1 million new members since June 2009 [ Woolworths alliance successfully launched [ Customer satisfaction at record highs [ Improvement to the member experience including [ Classic Award Airline Partners increased by 3 to 26 [ Ability to redeem on additional 46 airlines to over 100 destinations with Any Seat Awards [ Improved Qantas & Jetstar Any Seat Award booking engine [ Record redemptions on the Frequent Flyer Store, up 7%

[ Investment in market leading CRM systems progressing [ Strong people engagement scores 10

Strategic Journey

from this [ Airline program

[ Growth capped by limited Classic Awards

[ Classic Awards only

[ Bank disintermediation

[ Membership satisfaction declining

[ Function within marketing department of airline

Strategy execution

Segmentation

Segmented Member Strategies

Coalition Expansion

Direct Earn

Relaunch

to this [ Best earn proposition

[ Australia's leading coalition program [ Largest and most profitable

• Points on 27 Airlines

[ Record member satisfaction

• Points on Every day spend • Direct earn with all major banks

[ Market leading Awards

[ Membership growth into whole population

• Classic Awards on 27 Airlines • Any Seat Awards to over 100 destinations

[ Key Partners in place

• Competitive Award store

[ High achieving segment with clear strategy

11

Business Model

Time:

Point Earned by Member

Point Redeemed by Member

Life of a Point ~2 years

Point Activity

• Points Earned • Points Added to Points Pool

• Points remain in Pool

• Points Redeemed from Points Pool • Unused Points Expire

Cash Impact

• Cash Received (Billings)

• Positive Working Capital

• Cash Outflow to Purchase Rewards

• Fair Value of awards deferred • Marketing Revenue component recognised in P&L

• Deferred revenue liability maintained for fair value of awards expected to be redeemed

• Points Liability Reduced • Redemption Revenue & Redemption Costs recognised in P&L

Accounting Treatment *

Sources of Value Gross Margin on Points + Working Capital + Breakage (Expiry) Operating Costs

Salaries, IT, Qantas Royalty, admin etc

* After interim period when points in existence on 1 January 2009 are extinguished 12

Accounting Adjustment

FY 08

1H 09

128

73

1H 10

310

Less: Estimated one off impact of direct earn point ‘rush’

(84)

(84)

Underlying EBIT

153

226

Revenue recognition adjustment

(63)

(63)

(78)

90

163

79

128

[

FY 09

237

Reported EBIT

[

2H 09

73

157

On the 1st of January 2009 Qantas Frequent Flyer changed the way revenue is recognised for frequent flyer points. Revenue will be recognised: [

When points are sold for the ‘marketing’ element

[

When points are redeemed for the fair value of the award element

Under accounting standards existing points at 1 January 2009 will continue to recognise revenue at the higher value until all these points are extinguished. This will result in higher earnings for approximately 2 years. 13

Revenue Recognition - Points Pre 1 January 2009

Interim Recognition - until balance of points on 1 January 2009 are extinguished (Circa 2 yrs)

Normalised Recognition - after all points in existence on 1 January 2009 are extinguished

Marketing Revenue

Redemption Revenue – Prospective recognition

Amount charged for issuance of point

Redemption Revenue @ Average issue value of point

Redemption Revenue @ fair value of award

Marketing Revenue

Redemption Revenue @ fair value of award

Amount charged for issuance of point

Aligns cash flows and performance to earnings

Not aligned to cash flow or business performance

Redemption

Issuance

14