Virgin Australia’s future is looking uncertain after the company entered voluntary administration this week.
While administrators from Deloitte now try to figure out how to save the airline, 10 million Australians have been left wondering what happens to the Velocity Points they’ve accumulated via its rewards program. On Tuesday, Virgin told members it had frozen their points indefinitely.
“We’ve made the difficult decision to pause all redemptions for an initial period of four weeks, effective immediately. This means your members won’t be able to redeem their Points for rewards during the pause,” Virgin said in an update published on its website.
While it clarified that those points “aren’t going anywhere” and will have their expiration period extended to compensate for the freeze, the news hasn’t filled members with confidence.
Velocity store crashed. Looks like people were waiting to hear about Virgin going into voluntary admin before redeeming their points for a toaster.
— The Idiot Tax (@TheIdiotTax) April 20, 2020
With the COVID-19 outbreak all but halting both domestic and international flights, many may have been looking forward to a holiday when they’re able to finally take one. Velocity members are now faced with three broad scenarios.
1. Virgin collapses and the points become worthless
If the airline does in fact collapse they may have to kiss those points goodbye – as did customers after Ansett’s 2001 failure.
There are certainly some similarities between what happened to Ansett then, and what Virgin is going through now. Both were members of the Star Alliance group and had large underlying issues with their balance sheets with Virgin posting seven straight years of losses. Both were refused a bailout by the Australian government and were eventually placed into administration by the large overseas airlines that owned them.
Coincidentally perhaps, this occurred in both instances following a global crisis that smashed the aviation industry — 9/11 for Ansett, a global pandemic for Virgin.
If it does collapse, the company’s priorities will remain the same. As the airline liquidates assets and pays off its debts, there will be a long line of creditors including 16,000 employees as well as lenders who will be prioritised. That’s not to mention those Australians holding flight credit after having to cancelled their holiday plans due to the pandemic.
Given the size of Virgin’s debts, a collapse would more than likely mean those Velocity Points would be relegated to annals of an aviation history littered with failures.
2. Virgin reemerges from administration – but your points aren’t what they used to be
Of course, whether or not Virgin meets the same fate as Ansett is still unclear. The airline may be down right now, but it doesn’t mean it’s done.
Finance Minister Matthias Cormann told ABC Radio on Tuesday morning the federal government could offer some limited assistance to the airline if it can attract private investment, although it remains opposed to the idea of a $1.4 billion bailout.
If it can emerge from administration, Virgin would have to overhaul its operations and slash costs. While its loyalty program is currently profitable, it could look to devalue Velocity points, requiring members to spend more of them to buy the same goods.
3. Virgin collapses but sells its Velocity program
What has changed since Ansett’s collapse however is that loyalty programs are increasingly becoming one of the most profitable parts of an airline’s business. Even if Virgin did collapse, its Velocity program could be an attractive proposition, with the database containing a fair chunk of Australian consumers.
“With over 10 million members, the Velocity Frequent Flyer program is a highly profitable arm of Virgin Australia. It won’t necessarily disappear, even if the airline goes bust,” Adele Eliseo, founder of points website The Champagne Mile, told Business Insider Australia.
It’s possible a supermarket like Coles or Woolworths or a major bank could make a play for that part of the business, although again it’s unlikely those points will be the same afterwards.
“Members should be prepared to see a points devaluation and changes to redemption options,” Eliseo said.
Customers may also be less than pleased considering in that scenario there wouldn’t be an actual airline left with which to redeem them.
In the meantime, it looks like you may just have to pay for your toaster yourself.
This article was originally published on Business Insider Australia. Click here for more Australian stories like this.
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