Virgin Australia freezes Velocity frequent flyer program as airline enters administration

As the coronavirus continues to suppress demand for travel, airlines around the globe are facing unprecedented financial stress. Many are in the process of requesting or have already secured financial aid from their home governments, but some are being left to fend for themselves, and it's inevitable that we'll see a number of airlines go bankrupt.

The first major casualty occurred yesterday when Virgin Australia voluntarily entered into administration (similar to bankruptcy protection in the U.S.) after the Australian government denied its request for 1.4 billion Australian dollars (~$900 million USD) in aid. A few TPG readers were asking for advice on last-minute redemptions for their Velocity points, but before the dust had settled on the administration paperwork, Virgin Australia announced that it was temporarily suspending its Velocity program and freezing all redemptions, effective immediately.

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Virgin Australia suspends Velocity frequent flyer program

While Virgin Australia and a number of its subsidiary companies are now in administration, its Velocity frequent flyer program operates as a separate company that has not entered administration. Virgin Australia posted the following update on its website, alerting members to the temporary suspension of redemptions:

"Although Velocity is owned by the Virgin Australia Group, it is a separate company and it is not in administration. That means we're still operating, but we've made some temporary program changes in the interests of members.

We've made the difficult decision to pause all redemptions for an initial period of four weeks, effective immediately. This means our members won't be able to redeem their Points for rewards during the pause.

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We know how much our members love to plan their travel and use their Points to redeem flights, however the ongoing travel restrictions and reduced flights have limited the options for them to use Points for flights. We're seeing more members use Points to shop online for items such as gift cards, electronic goods, and wine. This unexpected demand has made it difficult for our suppliers to provide these offers and limits the availability for all members to redeem their Points.

What our members need to know:

· Your Points aren't going anywhere. They will remain in your account.

· Your existing Points will not expire through this period. We will be extending the expiration period for your existing Points by the timeframe of the pause.

· You can continue to earn Points with our partners, although you won't be able to redeem them during the pause.

· These changes take effect immediately. Although the initial timeframe for this restriction is four weeks, this period may be extended. We will come back to you with an update as soon as we can."

While this certainly isn't good news for any Virgin Australia frequent flyers with large balances in their Velocity accounts, there is some good news in this announcement. Virgin makes it clear that your points aren't going anywhere and will remain in your account during this initial four-week suspension. While much of the company's fate is uncertain, it seems unlikely that they would make that explicit of a promise unless they were reasonably sure they could keep it. It's possible that redemptions will be halted for longer than the initial four-week period, but the fact that they're continuing to allow members to earn points suggests that every effort will be made to keep the Velocity program alive in some form.

While Virgin Australia is the first major airline to declare bankruptcy, it's not the first loyalty program to limit redemptions during this pandemic. We've seen a number of other airline and hotel loyalty programs restrict non-travel redemptions such as gift cards and merchandise, likely to prevent customers with no immediate travel plans from cashing their points out and further exacerbating a liquidity crisis.

Related: Do frequent flyer miles survive airline bankruptcies? It depends

Bottom line

Virgin Australia has been in a tough financial position recently, and after its request for government aid was denied, administration was the only possible outcome. While Velocity redemptions have been temporarily frozen, hopefully the company will keep its word to customers and protect the program and people's points.