I’m sure everyone’s heard the news: Virgin Australia has entered into voluntary administration. Deloitte has been appointed to go through the process of selling Virgin Australia and with it the Velocity Frequent Flyer program. According to Deloitte, there are 10 interested buyers, but at this stage, we can only speculate who they are.
Virgin Australia will be sold as a package deal which will include the most valuable asset: Velocity Frequent Flyer.
As it stands, Velocity Frequent Flyer is a separate company and a very profitable one. This means it’s still trading, but all accounts and points have been frozen to prevent a total collapse. Right now frequent flyers are rightly worried about any points they still have in the program so it wouldn’t be ideal for the future value of Velocity to let everyone cash out.
Their goal will be to establish confidence with their users; a tough job!
On March 16th I wrote about “why you might want to transfer Velocity to KrisFlyer” if you didn’t take action then, all you can do right now is wait and hope for the best.
Are your points safe?
Yes… to some extent, they are. Vaughan Strawbridge from Deloitte told AFR today that “That is a separate legal entity. It is well set up. The members are well protected, there’s a trustee, and there’s a separate CEO of that entity,”
Of course, it’s of the highest interest of the administrators to make sure people know their points are “safe”. After all, the success of a loyalty program depends on it. In reality, though it would be naive to think we will pick up where we left off once the restructure is complete.
It’s very possible that whoever buys Virgin Australia and Velocity Frequent Flyer will reduce the value of points to prevent them from bleeding money when the program opens up for the redemptions again.
That said, reducing the value and cancelling already booked flights would be a sure way to burn a great asset (Velocity Frequent Flyer) to the ground. Not a smart move.
Will points expire?
No, all accounts have been frozen and with that the expiry date of your points. The expiry date of points will be extended by the same amount of time as the current “freeze” lasts.
Will my flights get cancelled?
At this stage, Deloitte is saying that no flights will be cancelled. However, at the same time, they have no guarantees, and it will simply come down to the eventual buyer and how generous they are feeling… at least that’s how I see the situation.
I asked Mark Ross-Smith from Travel Data Daily to weigh in on this question from an industry perspective, as he’s had experience running profitable programs when the airline itself struggles (eg: Malaysia Airlines) and has an opinion which I value greatly.
“Generally, most airlines around the world settle points bookings after flown, but Virgin may be different. Depends on the contracts they have with their partner carriers.
One example may work as follows:
Member books flight using Airline A points, to fly on Airline B. Airline A pays Airline B after the member completes the flights. Which explains why there’s generally little/no penalty to cancel/change award bookings — because no cash has changed hands before the flight starts.”
What I think/hope happens next.
I hope that whoever ends up buying will have a good understanding of loyalty programs and how they work. The first order will be to ensure the 10+ million users that their points will have an equal value when the program opens up again. Failing to establish trust will result in a second wave of panic redemptions and no one in their right mind would opt to credit points earned via credit card programs to Velocity.
To be successful, the new owners will have to ensure the following:
- No reduction in the apparent value of the points
- Honour existing bookings made with points
- Work on maintaining the many airline partners
- Promote the restructured program with incentives
Failing to gain trust will simply reduce Velocity Frequent Flyer to a junk program which is precisely what happened to the likes of Air Berlin and Jet Airways Privilege Miles.
Mark’s thoughts are somewhat in line with mine and he adds:
“A) New entity buys out all VA shareholders, renegotiates debt obligations and restarts the airline with only profitable activity in the future.
B) Airline collapses. Sharks bid for the assets and Velocity survives with new owners.
Whatever way you skin it, the Velocity points for members won’t be worth as much unless the airline continues with its current partner base, and the value of the points is retained — that’s an expensive proposition.
The program NEEDS a host airline to maintain value in the points for members. Jetprivilege and TopBonus are good examples – the program isn’t desirable without a host airline.”
What If I have A Velocity Credit Card?
Personally, I would stop using it until further clarity and guarantees are in place for Velocity Frequent Flyer. It might be a good time to call your bank to see if you can switch to a different product.
I’m a big fan of earning flexible rewards which let you transfer your points to a range of frequent flyer programs. In Australia, the best flexible rewards program (by a considerable margin) is American Express Membership Rewards. The cards that earn these points are Amex Platinum (personal and business), Platinum Edge, Explorer, the Amex Essentials, David Jones and David Jones Platinum cards.
For non-Amex spend, St George Amplify Rewards and ANZ Rewards are also options, but their earn rates aren’t that great.