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Qantas Airways Limited clips its own wings

Qantas Airways Limited (ASX: QAN) has taken a big punt in its efforts to restore the airline to profitability.

The airline has made changes to its frequent flyer program which are likely to anger members. They include reducing the number of points members earn on cheap fares, and cutting the status credits from flying on its Oneworld Alliance partner airlines.

With more than 9 million frequent flyer members, changes are likely to upset quite a few. In fact, it could spark a backlash against the airline, and plays perfectly into the hands of bitter rival Virgin Australia Holdings Ltd (ASX: VAH). Many Australians are members of both airlines’ frequent flyer programs, so can switch easily from one to the other.

As the editor of AirlineRatings.com, Geoffrey Thomas told Fairfax media, “The airline ought to be very careful in how they tread in this area .Two to three years ago, Qantas didn’t have any competition in business class or full service economy, but they now face very real competition from Virgin.

Under the new changes, customers will earn points based on their ticket class, rather than how far they fly, and status credits changes mean it will make it harder for flyers to reach the upper echelons of Qantas’s frequent flyer program.

Those travellers who normally buy top class tickets also stand to benefit, as they will receive more points than normal, and earn points at a higher rate than customers on lower levels.

Consumer group Choice spokesman Tom Godfrey said the changes will make consumers think twice before signing up with Qantas, and suggested the program should change its name to “Premium Purchases”. He says Qantas is not rewarding customers for their loyalty or how far they fly, but for buying premium fares.

The changes are of course designed to bring in more revenue, and lower frequent flyer expenses, just one of the moves Qantas is making as it attempts to become profitable. And once again, it illustrates the difficulties most airlines face.

Foolish takeaway

Only time will tell whether Qantas has made the right move. My view is this gives Virgin a perfect opportunity to take business customers and frequent flyers away from Qantas.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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