Virgin Australia sells stake in Velocity to private equity in move to ‘accelerate growth’
Virgin Australia is to sell 35 per cent of its Velocity Frequent Flyer program to private equity in a move the airline says will accelerate the growth of its loyalty division and enable it to realise its “full potential”.
The sale of the minority stake to Affinity Equity Partners will boost Virgin’s cash balance by $336 million with the deal, which values the program at $960m, expected to be completed by the end of October. It is subject to conditions, including approval by the Foreign Investment Review Board.
The announcement came as Virgin reported an underlying pre-tax loss of $211.7 million, in line with market expectations, as the airline followed Qantas in posting a grim set of figures amid tough market conditions.
Virgin Australia chief executive John Borghetti described the past 12 months as “one of the most difficult operating environments in the history of Australian aviation”.
The partial sale of Velocity, which has 4.5 million members, came as a surprise with the news emerging just 24 hours after Qantas admitted it had considered a stake in its own frequent flyer business after before deciding to retain complete control.
Virgin stressed that Velocity will remain under the Virgin Australia Group, will have majority representation on the board and appoint the chairman.
“In the last four years we have built a transformational loyalty business, doubling membership to 4.5 million and significantly increasing partner and member engagement,” Borghetti said. “Today’s announcement marks a significant milestone as it validates the success of the Velocity Frequent Flyer business to date.
“The program remains a key value driver for the Virgin Australia Group and through access to additional capital and resources this transaction will allow us to accelerate the program’s strategy and realise its full potential.”
He said the airline planned to grow membership to seven million over the next three years, further diversify its partners, and “strengthen member engagement in both points earned and points redeemed”.
Affinity head of Australia and New Zealand Brett Sutton said: “Velocity Frequent Flyer embodies all of the key traits we look for in an investment; a solid base business, strong management and significant growth prospects. Through this investment together with Virgin Australia we hope to rapidly grow the program and drive further value in return.”
Affinity is one of Asia Pacific’s largest investment firms and has a presence in Sydney, Hong Kong, Singapore, Seoul, Beijing and Jakarta.
If the Velocity business is so successful why is it the business that it has been created to support and drive loyalty – Virgin Australia has reported a loss of 356m and needs to flog the loyalty business to try and balance its books.
I think Byron Sharp was spot on about loyalty programs and their very limited benefit to businesses.
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