The minority shareholder in Virgin Australia’s Velocity frequent flyer program plans to offload a 35 per cent stake that was purchased in 2014.
Virgin Australia said on Thursday Affinity Equity Partners was “exploring an exit” from its investment in the frequent flyer program and had “requested that various exit options for the sale of its stake be considered”.
“The group remains committed to the long-term growth of the Velocity business and expects to remain the majority investor in Velocity,” Virgin Australia said in a regulatory filing to the Australian Securities Exchange (ASX) on Thursday.
“There is currently no certainty about the terms or timing that any such exit transaction could take.”
In October 2014, investment firm and fund manager Affinity Equity Partners paid $336 million for its 35 per cent stake, which valued Velocity at $960 million.
Virgin Australia, which retained 65 per cent voting rights and appointed the chair of the Velocity Frequent Flyer board, said at the time the deal would give Velocity access to additional capital and resources, as well as benefit from Affinity’s “enormous capability in data analytics and systems” and “turbocharge its development”.
In February, Virgin Australia reported Velocity had revenue of $208.9 million for the six months to December 31 2018, up 9.2 per cent from the prior corresponding period.
Earnings before interest and tax (EBIT) rose five per cent to $59 million. However, EBIT margins were down 0.4 percentage points due to regulatory changes for so-called interchange credit card fees introduced by the Reserve Bank of Australia.
Options for Affinity’s 35 per cent stake could include a listing on the ASX, a sale to another party or Virgin Australia buying back the shareholding. The airline could also sell down part of its 65 per cent shareholding as part of a public listing.
Media reports said both Virgin Australia and Affinity Equity Partners had engaged investment banks to advise on potential scenarios.
Qantas has about 12 million members in its frequent flyer program. The airline recently announced an overhaul of its frequent flyer program that included lifting the number of points required for flight redemptions in premium economy, business and first class, while reducing the points required for economy class.
Other changes included adding one million more reward seats and lowering surcharges for points bookings, as well as introducing a new membership program aimed at members who earn the bulk of their points through spending rather than flying. Qantas also planned to introduce a lifetime platinum status for its long-time members that reached an eye-watering 75,000 status credits.