Virgin to buy out Velocity frequent flyer partner Affinity

Virgin is set to buy back a 35pc share in its Velocity frequent flyer business from Affinity, for $700m.

Virgin is buying out a partner in its frequent flyer business. Picture: Bloomberg

Virgin Australia has confirmed it has drawn up a business agreement to buy back a 35 per cent share of the Velocity frequent flyer business from private equity group Affinity, for $700 million.

The figure is more than twice the $335m Affinity paid when it purchased the stake from Virgin Australia in 2014, and values the Velocity business at $2 billion.

In a statement to the Australian Securities Exchange today, Virgin Australia said completion of the transaction was subject to certain conditions.

These include “the finalisation and execution of long form documentation, funding and the group receiving Foreign Investment Review Board approval in respect of the acquisition”.

The transaction is expected to be completed by the end of the year.

It is not clear how Virgin Australia plans to fund the $700m purchase. The airline group slumped to a $315.4 million net loss in the 2019 financial year, which triggered a targeted cost-cutting program, a fleet, network and route review and the axing of 750 jobs.

However the Velocity business managed 12 per cent growth in earnings before interest and tax in the 2019 financial year to $122 million, making it one of the few bright spots in the results.

With almost 10 million members, Velocity is the third largest loyalty program in Australia after Qantas frequent flyers, and Woolworths’ Rewards.

The program recently lost a key partnership with BP which will team up with Qantas early next year, but CEO Paul Scurrah indicated Virgin would announce a new service station deal before the switch.