I specifically didn't use the word loyalty. I used the word trust. We know "loyalty" programs aren't about "loyalty" they're about marketing, but trust is different. Many who travel Virgin today have no loyalty to them, but probably trust them. If you betray that trust, then it doesn't take long, especially in the modern social media era, to seriously damage a brand, even amongst many who seek the lowest fares.
If they do go down that path, they may be better off ditching the brand altogether. Although there were many compounding factors in past shenanigans, resurrection of airline brands in Australia has not gone well (Compass Mk II, Tesna/Ansett Mk II, even at a stretch Australian airlines, although that was really superceded by Jetstar International). Notably the one success story (until a month ago) in Australian Aviation that has risen from the ashes (so to speak) of administration - ditched its three previous brand associations (Kendell, Hazelton, Ansett) and established a new identity (Rex).