The importance of Tesco to Avios

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Avios emailed most members yesterday with details of the current Tesco transfer promotion that I wrote about last week.

To confirm, there is NO transfer bonus this quarter.  Instead, you will receive an entry into a competition to win one of 200 x 9,000 Avios prizes when you convert at least £5 of Clubcard vouchers.

There was one interesting titbit in the email.

Avios thumbnail

Apparently, 2.52 BILLION Avios points were collected via Tesco Clubcard in the last 12 months.

As I wrote here, 97 billion Avios were issued in total in 2013.  This means that Tesco is only responsible for around 2.5% of all Avios points issued.

(Of course, a lot of those 97 billion Avios were issued to BA and Iberia flyers who collected them ‘by accident’ and will not redeem them.  Anyone who transfers from Tesco is clearly serious about using their Avios so the 2.5% number probably understates the importance of the relationship.)

2.52 BILLION Avios is equivalent to 1 billion Clubcard points or £10 million of Tesco vouchers at face value.  You would assume that Tesco is paying across at least the face value of the vouchers to Avios, because other Clubcard boost deals simply would not work if partners received less.  That said, £10 million is only a drop in the ocean compared to British Airways and Iberia annual passenger revenue of €16 billion in the last financial year.

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Comments

  1. whiskerxx says:

    So….as Tesco have UK sales of around £48billion and issue a point for every pound spent, the conversion to Avios is around 2% of the total?

  2. Andrew S says:

    But avios payments is directly on to the bottom line… its pure profit.

    • squills says:

      Can you explain?

    • Yes and no. It is clearly an immediate cash injection. However, plenty of redemptions involve cash payments out – eg Eurostar, hotels, car, sports tickets, events tickets, wine etc at roughly 0.5p per Avios.

      BA also has to pay partners for redemptions on non BA flights.

      Only BA redemptions (and Iberia) involve no cash payment out further down the line.

      • squills says:

        No problem with that but sounds like cash movement as opposed to profit.

        • Andrew S says:

          My reasoning is that supermarket transfers are not core business for avios. The costs of administering avios remain the same, the marginal cost of a flight are covered in fees, and an avios seat is a seat that otherwise would go empty…

          True I had not considered the “cash” options of partner redemptions but I would imagine only a small percentage are used for this purpose.

          You would assume there would be an accounting liability for future flights, but I have never seen evidence of this. Why would you have a huge “cash in the bank” balance carried by avios – you would use it to service the expensive debt?

  3. Given that it is a long term relationship, I would assume there are (reasonably) steady transfer payments from Tesco to pay for the ongoing issue of Avios. So any Tesco advance mega bulk purchase of Avios in previous years to allow for a decent period of fulfilment should not be an issue with reconciling the numbers (for the current year) used in the article. I wonder what kind of volume guarantees there are in their contract or any effect on charges…

    • My understanding is that there is no guarantee on either side. BA wants to encourage Clubcard redemptions and is aware that Virgin (and to a much lesser extent Monarch) compete for transfers for people who want flights but – presumably for accounting reasons – doesn’t want to offer transfer bonuses as an incentive. Hence the competitions. BA is not as desperate for cash these days as it was 2-3 years ago, when the incentive of receiving a few £m from Tesco was a great reason to run a bonus.

  4. Charlie says:

    I have a Tesco Mortgage, 4 clubcard points per pound spent (on both capital repayment and interest, including any overpayments I make). Do I win an award for being a points junkie?!

    (Actually I chose them because they had the cheapest overall package even after considering their steep mortgage fees.)

    • I think it is 1 clubcard point for every £4 rather than 4 points for every £1 spent. This is what I get with the mortgage I took out with them this year, unless they used to offer more in the past?

      • Charlie says:

        Yes you’re right, not sure what possessed me to say 4 points per pound.

        I endured a year of having to call them up every month to get the points to post due to an IT issue on their end. To make things worse a lot the CS staff are not that great, although this was a while ago hopefully they have improved. Just a warnnig be prepared to call up a lot to get mortgage appliactions moving.

        • I had the same experience during the application process – CS were not great, required constant chasing and it took far too long to complete. Glad it is done now. The rate they were offering was the most competitive though so it was too tempting.

          The points for our 1st months payment have just been added to my account, so no problems on that front thank god.

  5. When I signed up for a Nectar card yesterday one of the questions they ask you is whether you collect Avios. Any chance Avios might ditch Tesco and partner with Nectar instead?

  6. haasha says:

    Is it 2.52 billion transferred Avios or sitting in the accounts? I guess there is way more stacked in desperate wait for transfer bonus.

    • squills says:

      It wouldn’t be classified as Avios

      • Andrew S says:

        Now tesco’s clubcard liabilities would be interesting to see…;)

        • squills says:

          Dead right. I think they are generally happy to see unused stashes as they probably account for them well under par. That’s fair enough as obviously some do expire. I might trawl through the financial reports to see if anything comes up 😉

          • squills says:

            Had a scan but nothing much of interest, basically they do what they can get away with, I imagine.

            Clubcard, loyalty and other initiatives The cost of Clubcard and loyalty initiatives is part of the fair value of the consideration received and is deferred and subsequently recognised over the period that the awards are redeemed. The deferral is treated as a deduction from revenue.
            The fair value of the points awarded is determined with reference to the fair value to the customer and considers factors such as redemption via Clubcard deals versus money-off-in-store and redemption rate.

          • squills says:

            Says here that 95% of Clubcard points are actually redeemed (which would definitely curtail much opportunity for funny accounting, given the expiry deadlines etc)
            http://www.slideshare.net/fullscreen/dunnhumby/the-loyalty-guide-5-tesco-dunnhumby-case-study/5

          • Andrew says:

            ^ very interesting Squills

  7. Do some people still receive 800 avios per 250 of club card points? I signed up for automated air miles conversion years ago and tesco have continued to honour the increased rate on avios.

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