Just one year after Virgin Australia allowed members of the Velocity Frequent Flyer program to pick up some bonus points if they travel with pets, the airline has now sold more than one third of the $960 million loyalty program.
Virgin Australia took this action amid a huge annual financial loss.
The airline will also look to cut costs by $1 billion over the next three years, after falling to an annual net loss of $355.6 million, which is more than triples the previous year’s loss.
Velocity Frequent Flyer CEO Neil Thompson explained to Loyalty360 why the airline sold a 35% stake in the loyalty program.
“The transaction represents an exciting opportunity to accelerate the growth of the Velocity Frequent Flyer business and fast-track its strategy to become one of the world’s leading loyalty programs,” Thompson said. “Virgin Australia will maintain a majority stake in Velocity Frequent Flyer and majority representation on the Board, including the appointment of Chair and 65% of voting rights of security holders. The minority stake investment by Affinity Equity Partners validates the strong value of Velocity Frequent Flyer business, its appeal to members and partners, and its growth potential, valuing the entire business at close to $1 billion. This was a strategic decision and delivers a great platform from which to develop the program into a world class loyalty business.”
The sale of a 35% stake in its frequent flyer program to private equity firm Affinity Equity Partners is expected to improve the airline’s cash balance by $336 million. The deal values the Velocity program at $960 million, and leaves Virgin Australia with a majority stake, and majority representation on a new board which will manage the scheme.
Thompson said the partial sale won’t impact day-to-day changes for members. It will also not affect member’s ability to get rewards seats or change the way their accounts and points are managed and operated.
“The focus of the partnership will be to enhance the program to the benefit of both members and partners,” Thompson said. “We will continue to deliver innovative and personalised benefits to our members as we look to grow the membership base to 7 million by 2017.”
Will this move impact the customer experience?
“There will be no day-to-day changes to the customer experience for our members,” Thompson added. “In fact, the transaction will allow us to bring more benefits and features to our members at an even faster rate through additional investment and resources from our partnership at Affinity Equity Partners. Next year will be Velocity Frequent Flyer’s 10th anniversary and in that time we have grown the program to deliver a wide range of partners including a world-class network of global airlines, some of the most innovative and unique member benefits ever to be launched in Australia, and now have more than 4.5 million members. We look forward to continuing on this growth trajectory and making further exciting announcements to our members in the coming months.”
The airline’s cost saving program will focus on making more efficient use of fuel and its fleet, integrating New Zealand into its international business, and cutting its long-haul overseas bases to two.