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EXCLUSIVE: I chat with Virgin about the launch of Virgin Group Loyalty Company

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I broke off from my holiday yesterday to chat, separately, with Oli Byers, who runs Virgin Flying Club, and Andrew Swaffield, who runs the new Virgin Group Loyalty Company (VGLC).

In my article yesterday (click) we looked at Virgin’s announcement that it was launching Virgin Group Loyalty Company.  This is a new vehicle which will operate loyalty programmes for multiple Virgin-branded businesses, rewarding customers with Virgin Flying Club miles.

I wanted some clarification about how the new Virgin Group Loyalty Company would work and how Virgin Flying Club would fit into it.

Virgin Group Loyalty Company how it works

To be simplistic, Virgin is creating a copy of the Avios structure that IAG is currently breaking up.

Virgin Flying Club will remain a business unit inside Virgin Atlantic (in the same way that British Airways Executive Club is a business unit inside British Airways)

The airline will retain control over tier points and tier benefits, as well as how many miles you earn from a flight and how many miles you need for a flight redemption – although there will, I assume, be a cash transfer between the airline and VGLC each time

Your Flying Club miles will become the legal property of Virgin Group Loyalty Company (in the same way that the Avios in your BAEC account are the legal property of Avios Group Limited)

In terms of how you will be able to earn and spend miles:

People will be able to have a miles-earning loyalty account with VGLC without having to join Flying Club (in the same way you could have an avios.com account without joining BAEC) and vice versa

It will be possible to join both programmes using separate accounts ….

….. but existing Flying Club members will be able to log in to the VGLC website using their Flying Club log-in details and earn and spend from their Flying Club balance

What wasn’t clear was what would happen to existing Flying Club promotions, such as the Virgin Money offers.  Will they only be offered to VGLC members in the future, or will offers appear on both the Flying Club and VGLC websites?

Similarly, I wasn’t told whether non-flight redemptions would move exclusively to VGLC.

Rather like Avios, there will be a crunch point caused by the fact that Virgin Flying Club has members globally whilst, at least initially, Virgin Group Loyalty Company will be focused on the UK.  It won’t be possible to move all partner earning and redeeming away from Flying Club.  In the same way, avios.com was just for UK residents whilst anyone could join British Airways Executive Club.

And clarification on ownership

It turns out that the Air France KLM investment in Virgin Atlantic has not yet been completed.  This means that, legally, moving the existing miles liability from Virgin Atlantic into Virgin Group Loyalty Company is very easy.  Both companies have, at present, identical shareholders – 51% Virgin Group and 49% Delta Air Lines.  Air France KLM has approved the move.

(I assume Virgin’s lenders will have had to approve this change, as it impacts the cashflow of the airline. Instead of simply creating a balance sheet reserve for miles issued after a flight, it now needs to make a payment to VGLC.)

Going forward, of course, there will be different shareholders.  The airline will be owned 49% Delta, 31% Air France KLM and 20% Virgin Group whilst the loyalty company will be owned 49% Delta, 51% Virgin Group.  There will clearly be an incentive at Virgin Group for VGLC to extract as much money from the airline as possible, and an incentive at Air France KLM to resist.  Delta wins either way!

From my chats with both Oli and Andrew, they appear quietly confident about the new venture.  They don’t have the answer to every question yet but the new scheme will not be launching until 2019.

If nothing else, it should be good news for Head for Points because there will be a lot of new people collecting Flying Club miles and wanting to know how to spend them!

You can find out more about Virgin Group Loyalty Company on the Virgin Atlantic site here.

(Want to earn more Virgin Flying Club miles?  Click here to see our recent articles on Virgin Atlantic and Flying Club and click here for our home page with the latest news on earning and spending other airline and hotel points.)

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Comments

  1. Page 78 of Virgin’s Annual Report – the “Unredeemed revenue: customer loyalty programme” was £148.2m at the end of 2017 – up from £146.9m at the end of 2016.
    “The fair value of the awards is reduced to take into account the proportion of miles that
    are expected to expire (breakage) based on the results of actuarial valuation.”

    Assuming a figure of £150m – the transaction is VAA pays VGLC £150m in cash, and VGLC takes over the liability to honour the stock of Flying Club miles (e.g. 375m miles if they are using a figure of 0.4p per mile).

    And going forward, each time VGLC awards a FC mile due to a flight on VAA – VAA pays VGLC 0.4p per mile (or whatever the figure is).
    And each time FC miles are redeemed on a VAA flight – VGLC pays VAA 0.5p per mile redeemed (or whatever the figure is).

    Lets just hope that VGLC and VAA don’t have a falling out (like Virgin Media recently had with UKTV) – and redemptions get suspended !

  2. Rob – did you ask the Virgin guys:

    why are you doing this ?
    did KLM/AF require it ?
    why do you think you can generate value from a separate entity when BA/IAG have just admitted defeat ?
    why do you think this will work when Nectar hasn’t really taken off as planned ?
    why are you separating your loyalty program when the market is moving in the opposite direction – see Air Canada ?

    • Andrew and I have agreed to have a session when I’m back in London where we will be going through all this.

  3. Nigel Williams says:

    A perfect world for me would be the following

    – Virgin Rewards aims to become the “Clubcard” of miles programs
    – All mainstream Virgin Products (Media, Money, Mobile etc) regularly begin to offer miles
    – KLM / AirFrance becomes a viable option to use miles for short haul flights, redeemed through a common portal.

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