Value of Virgin's Velocity axed in report

[Hoatzin]

Value of Virgin's Velocity axed in report clearing way for Bain takeover

The value of Virgin Australia's frequent flyer scheme Velocity was slashed from $2 billion to $700 million in an independent report allowing Bain Capital to take full ownership of the company.

www.brisbanetimes.com.au

From the article;

" The value of Virgin Australia's profitable frequent flyer scheme Velocity was slashed from $2 billion to $700 million in an independent report paving the way for private equity firm Bain Capital to take full ownership of the company. "

A thought experiment into what an equivalent redemption devaluation (in red) would look like....the answer is not pretty as one would expect.

 

[TheInsider]

Just because it's been devalued doesn't mean they will increase the redemption rates by the same percentage...

 

[HS-TQE]

Not a good look for Bain after seeing VAH actually has little (if any) assets left of any Value. VFF was meant the 'most valuable' out of what's left of VA's un-encumbered assets.

With the majority of the leased fleet being returned and most of the 'owned' fleet already been 'asset-stripped' by SQ/EY/et al through the banks, Bain can't exactly 'sell and lease' back the owned fleet.

 

[jakeseven7]

Not a good look for Bain after seeing VAH actually has little (if any) assets left of any Value. VFF was meant the 'most valuable' out of what's left of VA's un-encumbered assets.

With the majority of the leased fleet being returned and most of the 'owned' fleet already been 'asset-stripped' by SQ/EY/et al through the banks, Bain can't exactly 'sell and lease' back the owned fleet.

Oh don't worry, when Bain come to flip VA2 in a few years the valuation will mysteriously be 10X of this number again....

 

[knagelli]

when Bain come to flip VA2 in a few years the valuation will mysteriously be 10X of this number again....

Is that even remotely possible under current circumstances ?

 

[serfty]

Is that even remotely possible under current circumstances ?

Yes .... there some creative accounting that should come to fruition in a year or two.

A reasonably obvious one is the report's valuation for Velocity being based on its 2020's earnings of $90 million down from $120 million a year earlier.

The report forecasts Velocity's earnings to recover by 2022 and grow ...

 

[knagelli]

Yes .... there some creative accounting that should come to fruition in a year or two.

A reasonably obvious one is the report's valuation for Velocity being based on its 2020's earnings of $90 million down from $120 million a year earlier.

The report forecasts Velocity's earnings to recover by 2022 and grow ...

I hope they are not going to come up with 1+1 = 11 instead of 2 . I was always loyal to VA/VFF but slowly looks like I will have to change my friends.

 

[jakeseven7]

I hope they are not going to come up with 1+1 = 11 instead of 2 . I was always loyal to VA/VFF but slowly looks like I will have to change my friends.

They will work some unbelievable circus tricks with these numbers over the next few years you watch.

If it makes you feel any better the VA/VFF you knew doesn’t really exist anymore it’s just a subsidiary of a US PE firm now, they’ve cleaned out senior management, more than halved the size of the fleet and it looks less appealing by the day...

 

[serfty]

I hope they are not going to come up with 1+1 = 11 instead of 2 . ...

No, more like the criteria used for the report not being representative on the situation 2 years from now.

 

[oz_mark]

Given the way that the success or otherwise of Velocity is intertwined with Virgin, is it any wonder an estimate of its value has fallen....

(and let's face it, when Virgin bought back Velocity, there would have been some premium in that valuation)

 

[Mattg]

Ouch. Virgin Australia paid $700m to buy back a 35% stake from Affinity Equity Partners just a year ago!

It just goes to show: frequent flyer programs may be a golden goose for airlines, but they can only be successful if you have a strong, appealing airline to back them up.

 

[knagelli]

they can only be successful if you have an airline to back them up.

I cannot agree more on the above point .....

 

[Bundy Bear]

after seeing VAH actually has little (if any) assets left of any Value. VFF was meant the 'most valuable' out of what's left of VA's un-encumbered assets.

The value will go right back to where it was a few years ago.

There is money in Velocity, just watch out when Velocity start selling points everywhere and everyone, then you will know its time to burn immediately.

 

[moa999]

Without Virgin the Velocity value is near zero.
With Virgin as an LCC I suspect it's value is a little less as well.

Reality is this report is seemingly there just to protect the administrators backside.

Reality is Bain made the highest offer for the lot, that's all that really matters.

 

[knagelli]

Reality is Bain made the highest offer for the lot, that's all that really matters.

Higher offer is one thing but what have they agreed to and how far they adhere to sale conditions is a different story. I will not believe BAIN capital until we see some positive signs.

 

[Hoatzin]

Just because it's been devalued doesn't mean they will increase the redemption rates by the same percentage...

True! I thought it was an interesting thought experiment in any case as it would represent the equivalent spend required for the airline to recoup (void really) the previous "real" value in points.

 

[trippin_the_rift]

Think about how much-deferred revenue (points liability) sits on the balance sheet.
Think about how much the program would be worth if Virgin the airline didn't exist (aka no key tenant to buy points).
Think about how many people would NOT want Velocity points if the airline partnerships (Etihad, Singapore, Delta etc) didn't exist.
Think about what earnings would look like if stripping out VA income.

The value as a stand-alone company versus the value to an airline is two HUGELY different valuations.
To the airline, Velocity is worth billions.
To a non-airline owner, Velocity is worth, at best, $1 per member.

Obviously Bain wants the lower valuation for tax and Government fees purposes.

 

[odysseus]

That valuation has only been done for a specific purpose. And that purpose benefits from having as low a valuation as possible, which is assuredly why it's been chosen. If they were trying to sell on the basis of this to another party, a much higher valuation would have been used.

Just like films are seriously unprofitable when it comes to royalties and taxes - yet still can be fantastic franchises for the movie studios.

 

[ozstamps]

FF points are aspirational things.

Joe Public DREAMS of his Business Class flight to Queensland. Lounge access, booze on flights, a decent meal etc, and has spent every penny all year on his Virgin card to get it.

None exist now, so he will simply chase QF points. He does not have any loyalty.

Bye Bye Velocity and Tiger #2 - you blew it.

 

[Nathant123]

None exist now, so he will simply chase QF points. He does not have any loyalty.

And unfortunately thats exactly what I've done. It saddens me to say it but the rest of my domestic travel moving forward will be with QF/JQ and I may as well earn the points. I do have the QR platinum match but don't even know if that'll stand for anything come July next year when it expires. Not sure if it drops to gold or vanishes altogether. My remaining velocity points are to be exchanged for vouchers which pains me to do but it is what it is. The final thing to do will be to cancel the velocity amex, or at least swap it to a qantas amex if thats even possible. I can't understand why Virgin haven't opened even a few of the lounges at the busier airports and offer a half decent meal to business travellers to entice them to stay.