Virgin Australia’s Velocity Frequent Flyer program is a separate company from Virgin Australia the airline. Virgin Australia has gone into Australia’s version of bankruptcy, the frequent flyer program has not.
However the frequent flyer program has frozen redemptions because of a ‘run on the bank’. With members expecting the loyalty program to go out of business, they were redeeming miles for merchandise. The loyalty program doesn’t have much cash coming in, though. They weren’t getting paid for flight miles with no one flying. Credit card charge volume is down.
If the airline ultimately fails, having a separate company means the miles don’t go away – but they won’t be worth less since getting airline tickets at a reasonable value (and partner airline tickets) is no longer possible – you have the problem of a zombie program like Jet Airways JetPrivilege rebranding itself as InterMiles after the collapse of its host carrier. InterMiles has a real challenge driving value to members now.
What I didn’t realize is that Velocity Frequent Flyer built cash in a trust and if the program failed it would, in theory, pay out money to members for their accumulated miles. That’s great in theory except… that trust lent AU$200 million [US$129 million] to the airline. Whoops.
Velocity had been spun off and separately owned, but the airline bought it back – and, it seems, raided its cash.
There are several firms that have expressed interest in the troubled number two Australian airline. Members need to hope that one of them succeeds.