Affinity flies in for Virgin Australia deal

The firm takes a 35% stake in the business' loyalty programme for $336m

Hong Kong-based Affinity Equity Partners has acquired a 35 percent stake in Virgin Australia’s Velocity Frequent Flyer programme for A$336 million ($314 million; €238 million) , valuing the entire business unit at A$960 million, according to a statement.

The transaction will be achieved through the purchase of Australian dollar-denominated convertible notes issued by Virgin Australia Group. The notes convert either after five years, immediately prior to an exit by Affinity, on a change of control event affecting the issuer of the notes (excluding a change of control at Virgin Australia level) or by mutual consent.

The firms will use the investment to accelerate the growth of the programme, which has grown significantly over recent years and remains a key driver for the business.

The news comes as the wider airline business posts an after-tax loss of A$335.6 million to the year ending 30 June 2014 – more than triple the previous year’s loss of A$98.1 million, according to Virgin Australia’s most recent financial report.

The firm said on-going economic uncertainty had contributed to the loss and it would not provide a forecast for the following financial year.

However, Virgin Australia’s loyalty programme Velocity Frequent Flyer, in which Affinity is investing, continues to grow.

“In the last four years we have built a transformational loyalty business, doubling membership numbers to 4.5 million and significantly increasing partner and member engagement. Today’s announcement marks a significant milestone as it validates the success of the Velocity Frequent Flyer business to date,” Virgin Australia chief executive John Borghetti said in a statement.

“The programme remains a key value driver for the Virgin Australia Group and through access to additional capital and resources, this transaction will allow us to accelerate the programmes’s strategy and realise its full potential as a world class loyalty business. Affinity brings a wealth of experience in driving rapid and sustainable growth across a diverse range of businesses.”

Affinity Equity Partners head of Australia and New Zealand Brett Sutton added: “We are excited to be investing in one of Australia’s largest and most successful loyalty programmes. Velocity Frequent Flyer embodies all of the key traits we look for in an investment – a solid base business, strong management and significant growth prospects. Through this investment together with Virgin Australia we hope to rapidly grow the program and drive further value in return.”