Virgin Australia has officially entered voluntary administration, as it struggles with a crippling $5 billion debt and unprecedented weak demand for air travel. But, this may not be the end for Virgin Australia – which continues to operate flights for now and is desperately working to find a long-term solution. So, what does this all mean for frequent flyers, Velocity points and Virgin Australia Travel Bank credits?
This article was originally published on 21 April 2020 and last updated on 23 April 2020.
Virgin Australia enters voluntary administration
Virgin Australia announced on Tuesday, 21 April that it has appointed Deloitte as voluntary administrators of the airline and some of its subsidiaries.
But this may not be the end of the line for Virgin Australia, which continues to operate scheduled flights – currently being subsidised by the federal government. Virgin Australia is not yet in liquidation nor insolvent, and decided to bring in administrators early to give the airline the best possible chance of long-term survival.
“Our decision today is about securing the future of the Virgin Australia Group and emerging on the other side of the COVID-19 crisis,” Virgin Australia CEO Paul Scurrah said.
Virgin Australia has been calling on the federal government to provide a $1.4 billion loan, ensuring its ongoing survival, for several weeks. The government has acknowledged that Australia needs a second airline to provide competition to Qantas, but has said that any assistance given to airlines would be industry-wide and that the government has no intention of bailing out Virgin. Instead, Prime Minister Scott Morrison wished Virgin success in finding a “market solution”.
With no further government assistance forthcoming, administrators now have the difficult task of restructuring the airline’s debt and securing new investment.
“Our intention is to undertake a process to restructure and re-finance the business and bring it out of administration as soon as possible,” administrator Vaughan Strawbridge said.
“We are committed to working with Paul and the Virgin Australia team and are progressing well on some immediate steps. We have commenced a process of seeking interest from parties for participation in the recapitalisation of the business and its future, and there have been several expressions of interest so far,” Strawbridge said.
Velocity Frequent Flyer redemptions paused for at least 4 weeks
Although Virgin Australia is now in voluntary administration, Velocity Frequent Flyer is run as a separate business and is not in administration. (You can hear more about the way Velocity Frequent Flyer was set up in Episode 34 of the AFF on AIR podcast.)
Nonetheless, Velocity Frequent Flyer has today suspended Velocity point redemptions for an initial period of 4 weeks – which is likely to be extended. For now, it is not possible to redeem your Velocity points for flights – nor for gift cards, appliances or wine.
Velocity Frequent Flyer acknowledged that its members enjoy using their points to book flights, but said that ongoing travel restrictions have limited these options.
“We’re seeing more members use Points to shop online for items such as gift cards, electronic goods, and wine. This unexpected demand has made it difficult for our suppliers to provide these offers and limits the availability for all members to redeem their Points,” Velocity Frequent Flyer said on its website.
The Velocity rewards store was taken offline after crashing the day before the administration was announced due to a high volume of traffic. And this statement has appeared on the Velocity Wine Store website:
Most orders placed on the Velocity rewards store or Velocity Wine Store prior to 21 April are being honoured, although there are delays in delivering products.
Some Velocity members that redeemed points for electronics on or after 12 April can expect particularly lengthy delays. According to AFF forum posts it would appear that Harvey Norman, which is responsible for shipping some electronics for the Velocity store, has not yet been paid for orders placed after this date.
You can still earn Velocity points, but some credit card transfers suspended
You can still earn Velocity points, and points will not expire during the redemption pause. The validity of all existing Velocity points will be extended for the duration of the pause. Normally, Velocity Frequent Flyer points expire if you do not earn or redeem any points for two years.
Currently you can still transfer points from some credit card reward programs, as well as Flybuys, to Velocity Frequent Flyer. But several Australian bank-operated loyalty schemes have temporarily suspended point transfers to Velocity. These include:
- American Express Membership Rewards
- ANZ Rewards
- NAB Rewards
- Westpac Altitude Rewards
- St George/Bank of Melbourne/Bank SA Amplify Rewards
- HSBC Rewards Plus
If you have a Velocity co-branded credit card, you will still earn Velocity Frequent Flyer points as normal. However, American Express is giving cardholders with direct-earning Velocity credit cards the option to switch to a different Amex product.
What does Virgin’s administration mean for Velocity Frequent Flyer in the long term?
In the long term, Velocity Frequent Flyer says that your points are safe. Paul Scurrah told the media today that “there is a trust in place that has cash backing for the points”.
However, what the Velocity loyalty program looks like in the future will depend on the outcome of administration proceedings at Virgin Australia. If the airline is able to get through this crisis, your points should survive with it.
But even if Virgin Australia was to eventually enter liquidation and ceased to exist, your Velocity points wouldn’t necessarily be instantly forfeited. Velocity Frequent Flyer was set up as a trust and could continue to survive even if Virgin Australia, the airline, goes out of business. Furthermore, Velocity Frequent Flyer – unlike its associated airline – has been highly profitable and would be a valuable asset to sell to a potential new buyer in the case of liquidation of the airline.
Even if the program was sold to a new buyer and rebranded, your points would likely be transferred as well. That’s because a loyalty program with engaged members that have points is more attractive to a potential buyer. But without an airline attached to the loyalty program, the range of redemptions and value of points could change.
Administrator Vaughan Strawbridge said that Velocity points will be preserved. This is what he said:
[Velocity points] have not been lost. It is a very valuable part of the group and it is the intent that that forms part of the restructuring proposal as we go forward. There is no intent at this stage to sell that part of the group. And whilst there may be some of those ability to access those points are paused for a period, it is around preserving value in that business. But that business is well structured, has a trustee and a separate CEO, and we’ll be working with them as we go through this process.
For now, we’ll just have to wait and see. If you currently have Velocity points in your account, you can’t redeem them at the moment anyway. So, you’ll unfortunately have little choice other than to come along for the ride with the millions of other Velocity Frequent Flyer members in Australia.
There is a lengthy discussion on this topic on the Australian Frequent Flyer forum: Is it Time to transfer/withdraw points from Velocity?
Are Virgin Australia Travel Bank credits safe?
For now, Virgin Australia travel credits are still valid and can still be used to book Virgin Australia flights.
“We’re operating a minimum domestic network as we speak and those credits can be used on that network, and can be used at any point in the future,” Scurrah said.
However, Virgin Australia is not providing any refunds while the company is in administration.
In the long term, it is uncertain whether Virgin Australia flight vouchers and credits will continue to be honoured. This will depend entirely on the outcome of the voluntary administration proceedings. It is possible that the airline will be saved and all credits will be honoured. But it’s also possible that voluntary administration could be used as an opportunity to wipe the airline’s debts. In this case, Virgin Australia travel credits could be forfeited, with customers holding them becoming unsecured creditors.
Should Virgin Australia cease to exist in the future, a credit card chargeback could become an option for those with outstanding flight bookings or travel vouchers which can no longer be honoured.
Frankly, if Virgin Australia plans to survive as an airline in the long term, it should be in the interests of the airline to honour the credit vouchers that have been issued in lieu of refunds for cancelled flights over the past month. If it doesn’t, it will have a lot of former customers that will feel let down by the brand and may refuse to book future travel with Virgin. Many thousands of Virgin Australia customers have unwanted travel bank credits due to the airline’s questionable refusal to refund cancelled flights during the COVID-19 shutdown.
Summary: The key points
To summarise the most important information that you need to know about the Virgin Australia voluntary administration:
- Virgin Australia has appointed voluntary administrators but continues to operate. There are hopes that the business will emerge stronger and with new investment on the other side of this.
- Velocity Frequent Flyer has temporarily paused the ability to redeem Velocity points, but your Velocity points appear to be safe.
- Velocity redemptions made prior to 21 April will be honoured, but there are some issues with electronics purchased on the Velocity rewards store on/after 12 April which have not yet been shipped by Harvey Norman.
- Some Australian credit card rewards programs have temporarily suspended the ability to transfer points to Velocity Frequent Flyer.
- Virgin Australia travel bank credits continue to be valid, but refunds have been paused.
Right now, our thoughts are with the thousands of Virgin Australia employees who must be going through a tough time.
Join the discussion on the Australian Frequent Flyer forum: Virgin Australia Financially Secure? [Now in Voluntary Administration]