Tough market prompts Virgin to shed chunk of rewards program

WHILE Virgin Australia's $211.7 million full-year underlying loss came as little surprise yesterday, the decision to sell off a 35% stake in its frequent flyer Velocity program did raise eyebrows.

The stake will go to Affinity Equity Partners, Asia's largest private equity fund, in a deal that will net Virgin Australia $336 million and reduce its gearing by 8%.

Virgin will retain control of the program but Velocity will now operate under a different board.

Virgin sang from the same hymn sheet as Qantas on Thursday attributing the loss, almost three times that of last year, to weak consumer confidence, high fuel prices and a difficult market.

"While the Virgin Group performed well in attracting high-yielding passengers and containing cost growth over the full year, underlying revenue performance was impacted by the challenging operating environment,'' said chief executive John Borghetti.

Although revenue rose to 7.1% to $4.31 billion, thanks much in part to a play for the corporate market, the airline felt the sting of its 60% share in Tigerair which lost $46 million this year.

Virgin Australia will now look to cut $1 billion in costs over the next three years as it also aims to implement its Virgin Vision 2017 program to maximise group potential.

"Over the next three years, the Virgin Australia Group will focus on six key areas: capitalising on growth business opportunities, driving yield enhancement, implementing a new cost program, optimising the balance sheet. Setting a new standard in customer experience and developing our people to their full potential,'' Mr Borghetti said.

- APN Newsdesk



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