Affinity sells frequent flier stake back to Virgin Australia

Affinity Equity Partners has more than doubled its money on Virgin Australia’s frequent flyer business, having agreed to sell back a 35% stake to the parent company for A$700 million ($480 million).

Tuesday 17th September 2019

By Asian Venture Capital Journal

The GP invested A$336 million in Velocity Frequent Flyer in 2014 with the airline retaining 65%. The deal came as Virgin Australia was looking for ways to shore up its balance sheet. In July, the airline said various exit options were under consideration amid speculation about a domestic stock market listing. Financial and strategic players also expressed interest in the business.

Set up in 2005, Velocity has 9.8 million members in Australia. This compares to about 4.5 million members at the time of the Affinity investment. The business is recognized as a core asset of Virgin Australia, which is the largest airline globally by fleet size to use the Virgin brand and the second-largest airline in Australia after Qantas.

The deal values Velocity at approximately A$2 billion, up from A$960 million in 2014. Virgin Australia’s market capitalization is currently around A$1.35 billion.

The airline generated A$5.8 billion in revenue for the 12 months ended June 2018, up from A$5.4 billion a year earlier. Over the same period, the net loss narrowed from A$653.3 million to A$315.4 million. Revenue from the Velocity program increased from A$372 million to A$411 million, while EBITDA rose from A$117.1 million A$132.4 million.

The program makes money by selling frequent flier miles in bulk to credit card issuers and other businesses that issue them to customers based on expenditure.

Virgin Australia’s buyback of the Affinity stake is expected to close before the end of 2019, pending approval from the Foreign Investment Review Board, among others, according to a filing.