Virgin Australia will regain full ownership of its Velocity Frequent Flyer loyalty program after selling a 35% stake to Affinity Equity Partners in 2014. Virgin will pay $700 million to buy back the stake in its profitable Velocity loyalty program – around double what Affinity paid for it five years ago.
Virgin Australia yesterday confirmed to the ASX that the transaction is expected to be completed by the end of 2019. The statement noted that the completion of the transaction would be subject to conditions including obtaining the necessary funding and approval from Australia’s Foreign Investment Review Board.
The Velocity buy-back deal values the Velocity Frequent Flyer business at $2 billion. It is not yet clear how the Virgin Australia Group, which has made annual losses for the past seven years, plans to obtain finance for the purchase.
This is not the first time that an airline has sold off part or all of its frequent flyer program, then tried to buy it back. In January 2019, Air Canada completed the process of buying back its Aeroplan loyalty program, which it had originally spun off as a separate business in 2002 and later sold to Aimia.
As well as being a marketing tool to drive loyalty and business for the airline, many frequent flyer programs are one of the most profitable parts of an airline’s business. Last financial year, for example, Qantas Frequent Flyer made a higher profit than Qantas’ entire international flying business. Meanwhile, Velocity Frequent Flyer made significantly more profit than Tigerair and Virgin’s international flights last year.
Velocity Frequent Flyer now has around 9.8 million members, with growth buoyed by partnerships with Flybuys and BP. The BP partnership will end soon, but Velocity is reportedly seeking to form a new petrol station partnership in its place.
The buy back is unlikely to have much of an impact on Velocity Frequent Flyer members. The Virgin Australia Group had always retained control of the loyalty program anyway since selling a minority stake to Affinity in 2014. If anything, this could be a good thing for Velocity members in the long term.
Join the discussion on the Australian Frequent Flyer forum: Virgin, Affinity prepare sale document for Velocity