Virgin Australia buys loyalty stake

Virgin Australia has confirmed that it has entered into a repurchase agreement for a 35% stake in its Velocity loyalty program for A $ 700 million (US $ 481 million).

The price is more than double that of the private equity and private equity group owned by A335 USD, which Affinity paid when acquiring the stake in 2014.

Affinity revealed in July that it was considering various exit options for its participation.

In a statement to the Australian Stock Exchange on Monday, Virgin said the finalization of the transaction was subject to certain conditions, including "the finalization and execution of detailed documentation", the financing and approval of the transaction by the Foreign Investment Review Board (FIRB).

The company said it expects the transaction to be finalized by the end of 2019 but has not specified how it will finance the acquisition.

FIRB's involvement stems from the fact that Virgin Australia is majority-owned by foreign interests, including two Chinese companies, as well as Singapore Airlines, Etihad and Virgin Group.

Loyalty programs have become a major source of money for airlines and Velocity, which has nearly 10 million members, generated an underlying profit of A $ 122.2 million in FY 2019 against $ 110.1 million the previous year.

Velocity revenue increased 10.5% to $ 411 million, with nearly 700,000 new members joining the program.

However, the group as a whole has announced a statutory loss of $ 315.4 million in 2018-2019.

READ: Virgin Australia to rationalize return to profitability

He also announced a series of cost reduction initiatives, including a streamlined organizational structure, the removal of 750 positions at headquarters and headquarters, as well as a review of capacity, network and fleet.

Chief Executive Officer Paul Scurrah said at the time that the group was operating in a challenging economic climate characterized by high fuel consumption, a weak Australian dollar and poor market conditions.

However, he noted that the results showed that Virgin needed to improve its financial performance and reduce its costs to ensure that the company saw the financial benefits of growing its business.