Virgin Velocity frequent flyer points frozen

The four-week freeze of failed Virgin’s Velocity program comes after anxious members crashed its website, amid fears of losing points.

Empty Virgin Australia check-in counters Brisbane International Airport. Picture: AAP

The administrators for Virgin have acted quickly to ring-fence its highly valuable frequent flyer program, Velocity, and protect it from a run on points by anxious members rushing to cash in points, with the hope the rewards program will be brought back to life when Virgin is restructured and hopefully relaunched.

While typically 90 per cent of points are redeemed for cheaper airline tickets, in the last few weeks Velocity members have panicked and tried to exchange their hoarded points for everything from gift cards to wine and furniture, but this has depleted available stock from partners to the Velocity program.

Potentially billions of dollars worth of frequent flyer points collected by members of collapsed airline Virgin have now been frozen for four weeks after Virgin’s lurch into voluntary administration on Tuesday.

However, administrators were quick to dispel any fears that the points will be lost forever as happened with the collapse of Ansett almost 20 years ago when around $700 million worth of its Global Rewards Points program were erased.

Helping to protect the rights of Velocity members is an independent trustee for the rewards program, which is one of the few airline rewards clubs to have a trustee, and the Velocity business is viewed as a valuable asset for a future reincarnation of Virgin if it is saved and relaunched.

Deloitte partner and voluntary administrator for Virgin, Vaughan Strawbridge, said on Tuesday Velocity members were “well protected”.

“Velocity is a separate legal entity, it is well set up, the members are well protected.. we're going to work with them as part of this process there will be a pause on redemption for a period but they're a key part of how this business is restructured and comes out of administration,’’ he said.

“The frequent flyer program is an incredibly good asset, it has been well set up and we'll be working closely with them going forward, the Velocity points are not lost they are all preserved..and they are still there.”

Velocity is a strong rewards program and has 10 million members and 90 corporate partners as well as airlines such as Singapore Airlines and Etihad.

Virgin chief executive Paul Scurrah said the four week freeze on redemptions was necessary, especially after speculation about Virgin’s solvency had caused a run on points being redeemed.

“It needs some time to stop the reduction in confidence. When our original request to the government made its way into the newspaper there was a run on Velocity points that we weren't able to slow down and there was an increase in people wanting refunds and despite our efforts we weren't able to slow that down.

“There's a positive step today that will give a bit of confidence.”

There were reports over the last few days that the Velocity website had crashed as members rushed the program to redeem as many points as possible on the eve of Virgin’s failure before the entire rewards program was thrown into limbo by the collapse of the nation’s second biggest airline.

In 2001 when Ansett collapsed it was estimated that as much as $700 million in its Global Rewards Points hoarded by members was rendered worthless.

In a statement posted on the Virgin Velocity website on Tuesday, millions of members were told that although the Velocity program had not been placed into voluntary administration alongside Virgin Australia Group the organisation had taken the “difficult decision” to pause all redemptions.

“Although Velocity is owned by the Virgin Australia Group, it is a separate company and it is not in administration. That means we’re still operating, but we’ve made some temporary program changes in the interests of members.

“We’ve made the difficult decision to pause all redemptions for an initial period of four weeks, effective immediately. This means your members won’t be able to redeem their Points for rewards during the pause.”

Although there is no public disclosure of the total value of Velocity points floating around its members it is estimated by some industry experts that as much as $2 billion in Velocity points remain in circulation. The last full-year report from Virgin listed $497.1m worth of points issued but as yet not redeemed.

In the last two days and as rumours of the looming collapse of Virgin spread members of the Velocity rewards program flooded the website to use the points before the entire program was frozen, causing the website to crash under the pressure of online traffic. The rush to use up points was further fuelled by the fact as travel is now banned there was no other place to use the points but at shops rather than airlines.

“We know how much our members love to plan their travel and use their Points to redeem flights, however the ongoing travel restrictions and reduced flights have limited the options for them to use Points for flights. We’re seeing more members use Points to shop online for items such as gift cards, electronic goods, and wine.

“This unexpected demand has made it difficult for our suppliers to provide these offers and limits the availability for all members to redeem their Points.”

Last year Virgin bought back its Velocity program from private equity for more than $700 million.