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Is THIS the strategy behind the Virgin Atlantic changes?

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I’m in Poland at the moment, so I’m catching up with the Virgin Atlantic Flying Club changes at roughly the same time as the rest of you. Rhys has been doing the heavy lifting in the office on your behalf.

If you look at his interview with Anthony Woodman, Virgin Atlantic’s VP of Loyalty, yesterday, you’ll notice one line that Rhys picked up on.

Anthony specifically said that he wants to “double the number of Virgin Points being redeemed on Virgin Atlantic”.

Virgin Flying Club Gold and Silver status

As Rhys noted, this statement doesn’t make much sense. It implies that only a small percentage of Virgin Points are being redeemed on Virgin Atlantic. This feels odd – the Virgin Flying Club base makes up the bulk of Virgin Red members and flight redemptions are far more expensive than other Virgin Red rewards.

However, there was potentially another clue when Anthony said that his model for the changes was Flying Blue, the Air France / KLM loyalty scheme.

Does Virgin Atlantic plan to copy Flying Blue and milk the US credit card market?

A couple of years ago, Flying Blue – under the management of Ben Lipsey, who I know fairly well – decided that the US credit card market represented a huge pile of untapped cash.

It wasn’t that simple to grab of course. Flying Blue has credit cards in the US but they are never going to make a dent in the overall market.

What Flying Blue decided to do was go for the points conversion market.

  • First, it signed up virtually every convertible points currency in the US. There are very few credit card points which cannot now be converted into Flying Blue.
  • Second, it started a series of aggressive conversion bonuses to get itself noticed. Last year it ran a 150% transfer bonus with one card issuer. Every transfer generates a cheque from Chase, Wells Fargo, Bilt, Citibank, American Express, Capital One etc.
  • Third, it partnered with award planning apps. These are websites (PointsYeah, Point.me etc) which show you the points price for a selected flight across multiple points programmes. Flying Blue ensured it was well positioned in these apps.

For many frequent flyer schemes there would be a risk from this strategy:

  • First, you are attracting such a high level of points conversions that you would take reward seats from your own frequent flyers
  • Second, this strategy only works if you have a reward seat to offer in the first place. If you can’t offer someone a flight, they’re not transferring their points to you – unless you are the cheapest route for booking a partner airline which does have a seat.

Because Flying Blue had ALREADY moved to ‘we’ll sell you any seat on any flight for points, even if it costs 1 million points (which it sometimes does)’, the two factors above weren’t an issue.

Whatever routing someone searches via a reward flight finding app, Flying Blue will ALWAYS show as available if it could be flown on Air France or KLM aircraft. The points price may be high but the flight will be there.

For someone who just picked up 100,000 miles for opening a new Chase / Bilt / Citi / American Express / Capital One credit card, and who is being offered a 30% to 50% conversion bonus on top, a high points price isn”t going to put them off. After all, it was just one credit card sign up bonus.

(I asked Ben if people do actually book awards for 1 million Flying Blue points. He told me that, to his surprise, they do.)

Here is a quote from a podcast that Ben did last year (thanks to Gary Leff for this):

So of course, Amex rewards is the biggest but there’s also Chase, there’s Citi, you know, Capital One. We, of course, have a partnership with Bilt [Wells Fargo]. So the logic is roughly the same. You can transfer it to Flying Blue and then you can redeem. And, you know, a lot of the challenge that national to the US and international program has is we’re not always top of mind. So we also look at some of our partners. Like Point.me, for example, which acts as a kind of Google Flights or an OTA for redemption. That allows us to very easily compare the availability and pricing of reward tickets. And then it tells them kind of where to transfer my points to and how do I book.

And for us, you know, when we can, they’ll remain profitable and offer attractive reward inventory and options to our customers. In the US in particular, for us it’s a really, you know, good source of value that I think that we offer and one which will actually lead us to, you know, having over 50 percent of our award tickets being issued point of sale US. As of about mid next year [mid 2024], which is a really interesting statistic, I think, for a foreign, foreign loyalty program.

Yes, over 50% of Air France KLM’s award tickets are now booked by members who live in the United States – and it’s virtually all funded by credit card points transfers into Flying Blue.

Is this how Virgin Atlantic will double the number of Virgin Points redeemed for flights?

If Virgin Atlantic DOES want to double the number of Virgin Points used for flight redemptions, it is going to have to do it via credit card points conversions.

This could be the plan:

  • start aggressively courting the credit card conversion market in the US via American Express / Wells Fargo / Bilt / Capital One / Citibank / Chase with larger transfer bonuses than we’ve seen historically
  • open up all seats for points so Virgin Atlantic can always offer a redemption option – even if the points price is high, people will still book because they are using ‘free’ credit card bonuses

If it adds 1% to Virgin Atlantic’s overall load factor it would be seen as a success – even if existing UK members without access to US-style credit card bonuses struggle to redeem due to high points pricing.

The Flying Blue strategy is not a secret. I have seen them present it at loyalty conferences more than once and via the podcast I mentioned above. They have always been keen to show what a crazy amount of money it brings in from the US credit card issuers. Perhaps Virgin Atlantic wants a cut too?

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Category

Virgin Atlantic and Flying Club, Virgin Atlantic Reward Mastercard

Comments (99)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • Chris W says:
    2 Oct2 October 07:34

    The biggest question for me is what will the program do about their surcharges.
    If they are increasing the points rates but still charging $2,000 plus on top of the points needed I doubt the average US points collector would send their credit card points their way.

    If they double the points and halve the surcharges then that would be worth peoples time.

    • Super Secret Stuff says:
      2 Oct2 October 08:22

      The article is a good analysis but I was wondering the same thing. If they are doing a flying blue strategy, I can’t imagine $1k or more in surcharges will be that competitive on the aggregator websites

      • Rob says:
        2 Oct2 October 08:28

        Surcharges are also now ‘dynamic’.

        • Super Secret Stuff says:
          2 Oct2 October 08:29

          Could we see as low as £10 surcharges?

          • Rhys says:
            2 Oct2 October 09:21

            Nobody knows because they haven’t told us, but I think it’s unlikely!

        • Roy says:
          2 Oct2 October 11:01

          I’m not sure dynamic surcharges is enough to make this plan work.

          People sitting on huge points balances may be willing to pay 1,000,000 points, as rightly or wrongly they regard their points stash as “free”. Time will tell whether they are willing to pay 1,000,000 points plus $2,300.

          • philco says:
            3 Oct3 October 14:08

            I am in the targeted demographic of this change (at least per this article). A US CC holder who generates many, many points a year. The elephant in the room of this change is the $2400 (I checked this week) surcharges that VS for ex-US flights in the J. There are very few folks who see this as a good deal. Not saying it is never a good deal but but from the east coast where I live sub-$3000 cash tickets are regularly available.

            US folks are used to relatively low surcharges and taxes and very few are going to be willing to drop that or even half that on a ticket. I am actually less sensitive to surcharges and was actively engaged in the VS ecosystem including holding two of their BOA CCs until earlier this year. That said I have entirely stopped acquiring VS points and I am trying to burn off the mid-six figure stack I have. VS challenges to be attractive to US CC card holders include:

            The ex-US surcharges are now beyond the pale, half the current ex-US surcharges would likely still not get me to reengage. BA RFS with the surcharge rebate from BA Chase card is now my preferred way to visit my relatives in UK.

            Lack of trust, they have been on a devaluation bent for last couple of years (consistently increasing surcharges ex-US and devaluing partner awards). This have all been generally unannounced.

            For US persons very limited useful network on their metal. Great for London, and a few other locations with one connection on either their metal or some other carrier.

            Horrible IT. I mean I have pretty low expectations for airline IT in general but I engage with maybe a dozen airline websites on a regular basis to search for and book awards and VS is easily the worst.

            Though it doesn’t bother me much (I am less picky than others) a lot of folks get fixated on the hard product and VS has a highly variable different kinds of seats on their flights.

            The great strength of VS in my book is their people. The CSRs are almost excellent and when I have flown VS metal usually back to the US to avoid the insane surcharges I have found the flight crews generally excellent and I like their “vibe”. There is also still some real value in some of their partner bookings. I find the Clubhouse in London one of my favorite lounges in the world.

      • LittleNick says:
        2 Oct2 October 08:29

        Exactly, one of the biggest issues is the crazy surcharges they levy for redemptions, repeated on many websites, I’m doubting Virgin FC are listening.
        The way they’ve communicated this all has been shambolic and dire with lack of any real detail or plan. This has fuelled the speculation it’s bad news. They’ve already told us the positive bits, which is that every seat will be available on points. The good news ends there or else they’d have told us more. I have no doubt for the vast majority of FC members this is generally overall bad for premium/upper redemptions. Remember this is just another company trying to maximise their bottom line for shareholders, and whatever the plan this is what they think is best.

    • cin3 says:
      2 Oct2 October 09:22

      Even if they halve them, I can’t see a scenario where it would be worth the total of points plus cash.

  • PeterK says:
    2 Oct2 October 07:40

    In the US, no US airline have charged cancellation fees since Covid and more recently have dropped change fees (even on redemption bookings). This allows you to keep chopping and changing flights as redemption rates change. If Virgin were to adopt this policy in the UK market it could be a game changer.

    Sadly I fear they will continue to follow BA and keep change fees in the UK market and miss out on this opportunity.

    My son, who lives in the US, frequently books flights at one price and then keeps an eye out for changes in the mileage pricing to secure the best rate prior to departure without incurring any fees.

    The AA app even shows how many points you’ll save by changing flights on a given day.

    • Jim Utd says:
      2 Oct2 October 08:27

      Good post. I find the same with Delta, I can regularly change to a lower price, instantly confirmed, points back in my account and no changes to the $5 tax. Here, VS would charge a £30 per person fee, probably re-charge your card and refund the initial spend taking two months, chaser emails and threats of letter before action to get your money back.

      Different worlds!

      • Rhys says:
        2 Oct2 October 09:22

        Even a £30 fee is great, though, when you compare it to how inflexible cash tickets can be. It also stops a lot of speculative booking/jumping around.

        • ChasP says:
          2 Oct2 October 09:44

          Virgin have been offering flexible tickets (or at least part flexible) for a small surcharge
          I wonder what % take up is

        • PeterK says:
          7 Oct7 October 08:06

          Rhys, but the big difference in the US is that changes are always possible whereas with BA everything is dependent on a flight having redemption seats available. It’s not always about reducing the cost, sometimes a more convenient flight becomes lower priced allowing you to change free and pay only a few more miles.

  • Tom says:
    2 Oct2 October 08:18

    The way the US credit card market is starting to distort not just the business model of travel business in the US but increasingly businesses outside the US too is fascinating.

    • Rhys says:
      2 Oct2 October 09:22

      This has been happening for years now!

      • Tom says:
        2 Oct2 October 10:26

        Stuff like changing the terms of your FFP to make redemptions starting in the US more expensive, offering transfer bonuses in the US etc. has been going on for a long time.

        This is wholly different to me – basically deciding your business will screw over customers in your European home market (UK in this case) to instead primarily target US credit card churners seems a newer phenomenon to me.

  • Christian says:
    2 Oct2 October 08:31

    Interesting. I’ve held a Virgin Atlantic Premium card for years. Don’t have status. Not sure I’ll keep it now. Was wobbling anyway since I got the Avios Barclaycard.

  • Super Secret Stuff says:
    2 Oct2 October 08:33

    The more I think about this the less synovial I am. However, I feel like they could have done this a different way that softens the blow. Change how part pay with points works such that it always shows up when you search for reward availability or use an aggregator. That way people are guaranteed a certain number of seats and at a known, fixed costs and you can also more obviously book any seat you want

    • Rhys says:
      2 Oct2 October 09:23

      Yes, they could have, and if I were them I would continue to guarantee 12 Saver Seats per flight. That way, you could preserve the existing certainty but still open up all seats on a flight for redemption at varying prices.

      • ed_fly says:
        2 Oct2 October 09:36

        Feels like part of the strategy is to avoid providing ‘cheap’ reward seats on flights that would sell out at high cash prices.

        • Rob says:
          2 Oct2 October 10:02

          As Nick from IAG posted in the comments yesterday, BA was sceptical about this too but now accepts it is a great way of attracting people to Avios and forced Qatar, Finnair to adopt it too.

          I mean …. you can do the maths yourself. Assume that 2% of VS flights are 100% full and that you knew that from Day 1. (Some flights will be full but only due to cancellations, aircraft swaps, short notice events etc – these don’t count.) Work out the difference in price between the cheapest cash ticket sold and the points seat revenue. Annualise that. It’s not a lot of money.

          • Roy says:
            2 Oct2 October 11:06

            I suspect what takes time is convincing them not to try and do the same calculation but using the most expensive ticket.

          • Rob says:
            2 Oct2 October 11:18

            That makes no sense though because you can’t grow the demand curve. If you add 50 more seats to a plane, those seats will be sold at below the current lowest price you are charging – that’s Economics 101.

            In simple terms, today there are 10 people willing to pay £10k to fly to New York, 200 people who will pay £1k and 20,000 who would pay £50. You’ve already sucked up the first two groups with your existing capacity so you’re just eating into the bottom tier by removing reward seats and swapping them for cash.

  • Froggee says:
    2 Oct2 October 08:43

    Grrrrrrrr

  • cin3 says:
    2 Oct2 October 09:21

    Thanks Rob for logging in and providing some actual analysis even if it’s all still very bad news.

    • Richie says:
      2 Oct2 October 09:29

      They haven’t published the details so we can do calculations and comparisons, it may be goodish news for some travellers.

  • mhughes says:
    2 Oct2 October 09:32

    but but….they told us that “Our aim is always to do right by them (our customers) and to make them smile”.

    This is the whole reason…it’s definitely not a money grabbing exercise.

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