The head of Virgin Australia's Velocity frequent-flyer program, Karl Schuster, says the airline is in talks with potential partners in the telecommunications and energy sectors as it seeks to cash in on consumers' obsession with air miles and generate more income from the retail sector.
Virgin will on Thursday announce a partnership with Coles which will allow members of the supermarket giant's loyalty scheme to convert their points into frequent-flyer miles. The tie-up, which follows years of on-again, off-again talks, follows a similar deal between Qantas and Woolworths in August.
Mr Schuster, who began talking to Coles about the tie-up shortly after he joined Virgin last year, said the deal was significant for the airline, which needed a major retail partner. Coles' flybuys program has around 8 million members who can convert points they earn on that program into Velocity frequent-flyer points at a similar exchange rate to what Woolworths and Qantas offer.
However, Mr Schuster said the Virgin offering was superior to many other airline programs as Coles customers could earn "status credits", which allow them to move up the airline membership food chain and become entitled to perks such as extra baggage, lounge access and seat upgrades. In many airline programs, passengers have to actually earn points flying to move to a higher membership tier.
Lift in membership
Virgin had 6.3 million members at the end of the financial year but is believed to be adding around 100,000 a month and is targeting more than 7 million by 2017. Qantas's frequent-flyer program has more than 11 million.
"We are expecting a business with the scale of Coles to experience a big lift in membership as well as flybuys members who don't necessarily fly with us join our program," he said.
Mr Schuster said the airline was in talks with more potential partners. It has existing partnerships with BP, National Australia Bank, Holden and Samsung, which offer frequent-flyer points instead of cash back for customers making big purchases or taking on a mortgage.
"Big brands are discovering that Virgin Australia's frequent-flyer currency is extremely desirable. We are entering a space that frequent-flyer programs have not operated in before and over the next year or so we have plans to do that to a much bigger degree," he told The Australian Financial Review.
With airline revenues stabilising, carriers are increasingly looking at loyalty programs to drive earnings. He said the financial services sector offered a big opportunity to grow its portfolio but was also looking at opportunities in the utilities sector. He said retail currently accounted for around 15 per cent of the portfolio but hoped to increase that to 30 per cent or more.
While Qantas has announced a tie-up with Airbnb, Virgin said it planned to get "closer" to the big hotel groups.
The launch of the Coles partnership will be accompanied by an advertising campaign featuring British comedian Dawn French.
Private equity firm Affinity acquired a 35 per cent stake in Velocity in 2014.
The value of the frequent-flyer market is around $1.6 billion. It is believed Virgin is targeting around a third of that total market.
michael.smith@fairfaxmedia.com.au
