Virgin Australia Raided Its Frequent Flyer Program For $129 Million

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.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. The “Social Security” model. Take cash, replace with IOU. What could go wrong?

  2. Hi Gary two things

    1. When you say Velocity was ‘spun off’, Virgin Australia always continued to own 65% of it. Affinity (PE firm) bought the other 35% for A$335m in 2014. Virgin Australia bought that 35% stake back for A$700m last year.

    2. The loan from Velocity to Virgin was initially A$150m and it was struck back in 2014. So it wasn’t a recent thing post the buy back from Affinity. Based on what I can read from what’s being reported in the media, it seems to have grown to A$200m largely because of capitalised interest.

  3. DC is right on.

    The loan from Velocity to VA was made 6 years ago – about the very time that VA was investing in the world’s best domestic Business class, the likes of which I hope we get to see keeps on flying us across Australia.

    Unlike Alan Joyce who locked out his staff and grounded the Qantas fleet while stranding me in Perth in 2011, VA and Velocity have always gone out of their way to provide real service to their most important asset – their customer.

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