Why Did Virgin Australia Suspend Velocity Points Transfers?

If you weren’t aware already, Velocity Frequent Flyer suspended the transfer of points to Singapore Airlines KrisFlyer on Thursday without warning. Although they say this is a temporary suspension, it will all come down to the survival of Virgin Australia and Velocity members are rightly worried about potentially losing their points.

What’s the transfer all about?

Up until Friday, Velocity Frequent Flyer members were able to convert their points directly to the Singapore Airlines KrisFlyer program. 1 Velocity Point is worth 0.6452 KrisFlyer miles, and points transfers are instant.

I advised people to transfer back on March 16th, and I cleared out my Velocity Frequent Flyer balance — ironically on Friday morning, hours before the shutdown! I even made a video at the time on how to transfer your points and why doing it right now was/would be a good idea…

The reason transferring to KrisFlyer is/was a good idea is simply because A) KrisFlyer miles are extremely valuable and B) it would be a protection just in case Virgin Australia does not survive the current pandemic.

Why are points transfers being blocked?

The simple reason Velocity Frequent Flyer has restricted points transfers to KrisFlyer is to prevent a so-called “run on the bank”. This happens when people are panicked and want to get their points out to lock in any value possible.

Frequent Flyer points can be a huge liability for an airline in times like these. As long as your points stay in the program, there’s no cost for the airline. However, as soon as people start redeeming their points en masse, the airline would lose millions in having to pay out for these redemptions.

As it stands, KrisFlyer miles are some of the most expensive points for loyalty programs to buy. Whenever you send points from Velocity to KrisFlyer, Velocity/Virgin would get billed for this.

I know that KrisFlyer bills its partners in USD and the current conversion rates are atrocious so it wouldn’t surprise me if the cost of one KrisFlyer mile is more than 1.5 cents. That’s a massive liability for an airline, already struggling to stay afloat in the current environment.

Note that Virgin Australia/ Velocity aren’t the only ones putting in place restrictions. A lot of international airlines and Qantas have already started limiting the use of miles to purchase goods such as vacuum cleaners, toasters and gift cards.

Is this the end of the line?

Not at all! One could argue that Virgin Australia should have blocked transfers much earlier to prevent any further losses to their balance sheet. If we want Virgin Australia to survive (and we do!), they will need all the cash possible during this period.

Of course, there could have been better communication from Velocity Frequent Flyer in regards to this. If anything, not giving any information to members will only fuel to panic redemptions for physical goods, wine and gift cards. Some reassurance would be great! Maybe they could even offer interest payments for people who don’t redeem their points? Imagine if loyalty programs give you 10 to 20% interest for not touching your points for the next 3 to 6 months.

What should I do now?

Right now anything is possible. I wouldn’t be surprised if a last-minute bailout happens. As it stands Virgin Australia have around 3 months of cash reserves left. Personally, I wouldn’t redeem points for physical items such as gift cards and toasters, but I know a lot of people are doing precisely that.

Using your miles to book redemptions with Singapore Airlines and Etihad won’t secure your points either because there’s a high chance that those bookings would be cancelled if something were to happen to VA. The other issue is that there are no travel insurance companies right now (if you know of one, please let me know?) that are offering policies so it would be tough to back it up with travel cancellation insurance.

If you still have points in Velocity Frequent Flyer, just monitor the situation closely and look for signs of improvement — hopefully.