Could Virgin be the next Ansett?

There are further signs of financial turmoil at Virgin Australia after Air New Zealand flagged plans to sell its financial stake in the airline. The CEO of Air New Zealand, Christopher Luxon, has also resigned from the Virgin Australia board. The news has led some concerned members, fearing a repeat of the Ansett collapse, to empty their Velocity accounts.

Air New Zealand, Etihad Airways and Singapore Airlines all currently own stakes in Virgin Australia. Air New Zealand’s is the largest, at 25.9%. Virgin Australia Holdings is also listed on the Australian Stock Exchange.

Air New Zealand and other shareholders have been publicly critical in recent months of Virgin’s inability to make money. A lot of cash has been poured into Virgin’s transformation from a low-cost to a full service airline. In spite of this, the airline has struggled to turn its fortunes around in the form of a bumper profit. Some members believe that the airline is now under strict instructions from shareholders to start making money. In recent months we’ve seen an increase in airfares, changes to the Velocity frequent flyer program and the implementation of various other cost-cutting measures. But it seems Air New Zealand is not convinced that these changes will be enough.

Air NZ have been very critical of VA’s strategy and lack of profit, so I guess not tooooo surprising!

There have been reports of cash flow problems at Virgin Australia. The airline has already sold a 30% stake in its Velocity Frequent Flyer program, and it was recently forced to request a new loan of $425 million from its four largest shareholders.

Considering the potential financial difficulties at Virgin Australia, some members fear that the airline could face a similar fate to Ansett Airlines. After the airline’s collapse last decade, Ansett frequent flyers lost hundreds of thousands of frequent flyer points. Unwilling to risk a repeat, some members have already transferred their Velocity points balances to the Singapore Airlines KrisFlyer program.

A ‘run on the bank’ with everyone transferring points out to KrisFlyer would cripple Velocity in an heartbeat.

Must say – I feel uneasy with a velocity balance. Especially with the junk offers they send me – says to me they’re not good at monetizing their data. Just moved 75% of my Velocity balance out to Krisflyer

However, not all members are concerned.

C’mon guys. Transferring out to KF just because of this? VFF only recently adjusted points tables. They can’t mess with them too much, or they risk pissing off all points holders and it would be seriously downhill from there.

Virgin Australia and Air New Zealand offer co-ordinated schedules and fares on trans-Tasman routes. This partnership is set to continue into the future.

Join the discussion HERE.

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Matt Graham
The editor of Australian Frequent Flyer, Matt's passion for travel has taken him to over 60 countries… with the help of frequent flyer points, of course!
Matt's favourite destinations (so far) are Germany, Brazil, New Zealand & Kazakhstan. His interests include economics, aviation & foreign languages, and he has a soft spot for good food and red wine.

You can contact Matt at [email protected]