The equity partner in Virgin Australia’s loyalty program is looking to offload its 35 percent stake and has asked for various sale options to be considered.
Private equity firm Affinity has been a minority stakeholder in the Velocity Frequent Flyer program since August 2014, and Virgin said there was “currently no clarity about the terms or timing that such transaction could take”.
“The group remains committed to the long-term growth of the Velocity business and expects to remain the majority investor in Velocity,’’ it said in a short statement to the ASX.
READ: Virgin Australia, Virgin Atlantic get interim nod to deepen relationship
Loyalty programs are profit centers for airlines while at the same time encouraging repeat custom from flyers.
Velocity now has 9.1 million members, compared to 12.1 million at rival Qantas, and is a leading loyalty program in Australia.
Affinity Equity partners paid $A336 for its stake and the Australian Financial Review reported earlier this year been in talks with investments banks to explore options that include a sale to a strategic buyer or large global equity firm or floating its stake.
The Australian national financial daily suggested the stake would be worth more than $A750 million.
Velocity was affected by the Reserve Bank of Australia’s changes to credit card interchange rates but in the six months to December 31, 2018, reported increases in both revenue and earnings.
Total revenue rose 9.2 percent to $A208.9 million and earnings before interest and tax (EBIT) increased 5 percent to $A59 million with a margin of 28.2 percent.
The six-month period delivered 347,265 new membership in the six month period and posted its highest-ever reward redemption levels.
However, it faces stiff competition from the bigger Qantas frequent Flyer program which recently announced a major revamp.
Qantas cut the additional fees it charges frequent flyers using points and added more than a million extra reward seats a year.
But it made it more expensive to upgrade and to redeem premium seats.
READ: Winners and Losers in Qantas frequent flyer revamp.
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