It is a rather peculiar situation when the 'best' thing about a company isn't actually the line of business that it's in, but that turns out to be the case for Qantas Airways Limited (ASX: QAN). While its reason for being is to operate planes and deliver its passengers all around the world, the economics of this business are incredibly poor. In contrast Qantas' Frequent Flyer business is an absolutely first class loyalty program that some analysts are valuing at roughly the current market value ascribed to the whole company!
Qantas isn't the only business which faces this unusual situation either. Upmarket department store operator David Jones Limited (ASX: DJS) has for a long time been envied more for its super-profitable American Express-branded credit card venture than for its retailing prowess.
The profitability of these loyalty businesses highlights a key aim of retailers – to create loyalty within their customer base and to know their customers by tracking their consumption habits. This is the secret to their success.
Woolworths Limited (ASX: WOW) has been clever to realise the value of loyalty programs and to implement a system which has been a hit with its customer base. The Woolworths Everyday Rewards program has been a resounding success for the company and this is in no small part due to the decision to link up with the Qantas Frequent Flyer program. In fact the decision to offer its customers the opportunity to earn frequent flyer points would appear to be a major benefit over the Coles – owned by Wesfarmers Ltd (ASX: WES) – Fly Buys program.
