Ahead of a highly anticipated float of Virgin Australia’s frequent flyer division, rival Qantas Airways has poached one of the division’s largest partners, BP Australia.
From early next year, shopping at one of BP’s 1400 branded retail fuel sites (it owns 350, with the remainder owned and operated by partners) will allow customers to earn Qantas frequent flyer points, instead of Velocity points.
BP Australia vice-president Brooke Miller said a significant portion of customers choose a service station based on rewards alone.
The relationship between BP and Virgin has been fraught for some time – though not as cut-throat as the relationship between Qantas and Virgin.
In May 2017, Virgin Australia took legal action against BP after the global fuel giant sought to exit its contract with Velocity ahead of the $1.8 billion acquisition of Woolworths’ petrol stations. Woolworths has a partnership with Qantas.
BP later walked away from the Woolworths deal, after objections from the competition regulator, but the contract with Velocity was ended in 2017 and not renewed.
But the change of loyalty partner will likely refocus investors on other Velocity contracts as the market considers a valuation for the Virgin frequent flyer business.
Private equity firm Affinity is considering options to sell its 35 per cent share in the Velocity frequent flyer division, with an initial public offering tipped as the most likely.
Last week, Virgin chief executive Paul Scurrah said no decision had been reached about the sale.
He said: “The group remains committed to the long-term growth of the Velocity business and expects to remain the majority investor in Velocity.”
The performance of Velocity was one of the stronger parts of Virgin’s result, which was hit by higher fuel costs, a lower Australian dollar and write-downs. The frequent flyer division reported underlying earnings before interest and tax of $122.2 million, up from $110.1 million, on increased revenue of $411 million.
The division, which has 90 partners with 300 brands, makes money by other companies, like BP, buying points from the airline with which to reward their customers.
Qantas chief Alan Joyce has said the frequent flyer division – which is aiming to generate earnings of as much as $600 million by 2022 – is a key part of the airline demonstrating to the market it can deliver consistent earnings, whatever the economic climate, fuel price or currency.