BRISBANE: Virgin Australia Holdings Ltd on Monday said it entered an agreement to buy back the 35 per cent of its Velocity frequent flyer programme that it does not already own for A$700 million from private-equity group Affinity Equity Partners.
Credit ratings agencies Standard & Poor's and Moody's said the airline, which lacks an investment grade rating, should be able to fund the deal. The value of loyalty schemes lies in the steady income from banks, retailers and other partners who pay up front for points and then pass them on to customers who typically do not redeem them with airlines for many months.Velocity is Australia's second-largest airline loyalty programme, behind that of rival Qantas Airways Ltd, with 9.8 million members as of Jun 30.
Ian Chitterer, a vice president at Moody's, said the Velocity purchase was credit positive for Virgin because it would diversify earnings away from the cyclical airline sector but the final impact on its rating would depend on the funding structure.
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