Velocity spreads its wings with new partnerships

Virgin Australia’s frequent-flyer program Velocity is on track to become a $500m-a-year business.

Karl Schuster says Velocity is talking with retailers about partnerships. Picture: James Croucher

Virgin Australia’s frequent-flyer program Velocity is on track to become a $500 million-a-year business within the next two years as a spate of incoming partnerships help push it past to its target of seven million members by 2017.

Velocity frequent-flyer program chief Karl Schuster said the Velocity business was working on a range of new deals, including an expansion of its partnership with oil giant BP, to help fuel its growth.

“I don’t think it has been put out there before but the market for frequent flyer points in Australia is worth in excess of $1.6 billion,” Mr Schuster said.

“That market is going to be worth $2bn in the next two years and we are heading towards being a $500 million business in a couple of years’ time.

“But we have less than our fair share of that and it is a market that is growing at a rate of about $100m a year.

“Our ambition is to take the lion’s share of that because we believe our competition has topped out.”  Mr Schuster’s ambitions for Velocity’s growth underline the importance of Loyalty programs to the nation’s two dominant ­airlines, Qantas and Virgin.

In the six months to December 31, Velocity’s six million members helped to pull in $155m in revenue for Virgin or about 6 per cent of its total revenue base.

It is a similar story at Qantas, where in the same period its frequent flyer program — which boasts more than 11.2 million members — contributed $734m in revenue or about 9 per cent of its total income.

However, Qantas and its Frequent Flyer program has something that Velocity lacks: a major partnership with one of the nation’s two largest supermarkets, Woolworths.

But Mr Schuster said that could change as early as this year, with Velocity talking with “all the big retailers” about potential partnerships. He said the business had made it a priority to sign one.

“Of course this is a priority for us. We’d love to have a big retailer in the program but it’s got to be a win for us, a win for them and a win for the customer. Until we can get to that type of balanced reciprocity we are not going to do it,” he said.

“I think a deal could be done really quickly. Deals can be done fast — it just depends on whether or not a big retailer thinks they have a burning platform or an opportunity.”

While Mr Schuster said Velocity was keen to sign on a big retailer to the Velocity program, he said he would not be rushed into a deal and wanted to ensure that any potential tie-up would not be “watered down”.

“We have had multiple approaches from many large retail brands but until it’s the right construct we’re not going to do it,” Mr Schuster said.

Mr Schuster pointed to Velocity’s relationship with BP as an example of the reciprocity that he wanted to achieve through any potential retail tie-ups.

“Our partnership proposition is to really go deep with our partners. It’s not just about signing a contract, selling points and taking the money. It’s about creating the right access to our member base, it’s about making investment in new technologies,” he said.

“We’ve been helping BP grow market share and they have been helping us.”

Velocity launched its partnership with BP a year ago. The program allows members of the loyalty scheme to earn points when buying petrol and other goods at 1400 service stations around the country.

The alliance has helped grow Velocity’s membership by between 40,000 and 50,000 new sign-ups a week.

“Bringing BP on as a partner has added hundreds of thousands of members to the program. That’s what has helped move the fly-wheel and add a million members in the past 12 months,” Mr Schuster said.

Velocity’s might as a revenue engine in Virgin has helped the airline raise much-needed cash in the past. In 2014 the airline sold a 35 per cent stake in Velocity to private equity group Affinity ­Equity Partners for $336m.

The airline is again looking for new sources of cash as it undergoes a wide-ranging review of its capital structure. Investment bank Credit Suisse recently warned that Virgin needed to raise as much as $1bn in new capital to repair its balance sheet.

But it is understood the Velocity business has been quarantined from any potential sell-off.

Mr Schuster said his relationship with Velocity’s part-owner, Affinity, was “great”.