Why Virgin Velocity points owners may want to sit tight

It’s been a very difficult month for Virgin Australia, as the Australian airline stood down 8,000 workers and announced it would go into voluntary administration on the back of the COVID-19 crisis.

While it is indeed a terrible situation for any affected, if you're reliant on Virgin Velocity points, you're affected, as well.

With a question mark looming over Virgin Australia and the airline on shaky ground, the chance of using any points gleaned from rewards systems begins to disappear into the sky with each passing day.

State of play for your Velocity points

As it stands, Virgin Australia was placed into administration but Velocity, a separate entity that is wholly owned by Virgin Australia, was not.

It was revealed that Virgin Australia owed $5.3 billion to creditors, including clients like travel agents and bondholders.

In Virgin Australia’s last annual report, the full value of Velocity points came in at $497.1 million. However, The Australian Financial Review (AFR) revealed that the trust Velocity holds its points in had lent around $200 million in secured loans to Virgin Australia . This “raised questions” around whether there were “enough funds in the trust to cover the full value of the points”, the AFR reported.

On the 21^st April, Velocity frequent flyer customers were sent an email stating that Velocity was still operating, but it would be pausing all point redemptions for an “initial period of four weeks”. Customers were reassured that their points “weren’t going anywhere” and would not expire through this period.

For card customers, you’ll still be able to earn points through your spending, although you won’t be able to redeem them at this time.

Velocity customers may be asking themselves what will happen to their points as they wait on bated breath for them to be redeemable again.

Experts weigh in on Virgin Velocity points cards

Steve Hui, Founder of iFlyFlat, wrote about the future of Velocity points for frequent flyer credit card holders.

“Virgin Australia's Velocity Frequent Flyer program will survive, but members should expect their points to be worth less once a new owner is found for the airline,” said Mr Hui.

“The points are likely to be honoured in some form as the new owners want to retain the business's customers and get off to a good start.

“In the event that the airline is liquidated (worst case scenario) Velocity members could still expect some compensation,” said Mr Hui.

Many Velocity Points credit card holders may be wondering what they can do right now. In an interview with RateCity, Steve Hui said they have two possible options.

“Velocity co-brand credit card holders should wait or contact their bank to see what options they have for them,” he said.

“Some banks have paused the transfer of points from credit cards to Velocity. So those cards which earn Velocity directly, they will have other options.

“It is better to change to a credit card that first accumulate ‘Rewards Points’ with the card, which then you can select to transfer to an airline at a later date. Examples such as AMEX membership reward points, Amplify points, ANZ points etc.”

RateCity Research Director, Sally Tindall, said: “While Velocity has confirmed points are safe, it’s not yet clear what the program will look like on the other side of the pause.

“While a lot of people will sit tight, others might decide they’re not going to be travelling as much and don’t need a frequent flier card,” she said.

There are still actions credit card holders can take right now, according to Ms Tindall.

“Now is a good time to do a health check on your credit card, especially if your annual fee is due soon. Big spenders might find their rewards card is still working in their favour, while others might realise they’re better off switching to a low rate, low fee card without the bells and whistles.

"However, moving to a different credit card might not be that easy in this environment," she cautioned.

"Some companies have stopped taking credit card applications while anyone who’s lost their job might find they can’t get a new credit card application across the line. If that’s you, call your current provider and see if they can switch you to a low rate card, especially if you’ve got money owing on it."

Alternative frequent flyer credit cards

Without a crystal ball, it’s difficult to predict exactly how long Velocity Points credit card holders may be waiting to redeem their points, or if they’ll still be worth the same value.

If you’re considering looking into alternative frequent flyer credit cards for a worst-case scenario, you’ll need to know who the other big players are.

The airlines offering frequent flyer points in Australia are:

With Qantas being the largest airline in Australia by fleet size, international flights and international destinations, all of the big four banks offer customers Qantas frequent flyer credit cards.

Highest Qantas joining points bonus on credit cards

Data accurate as of 29.04.2020. 

In terms of Qantas joining points bonuses for new customers, the highest offerings on the market from card providers are anywhere from 80,000 to 150,000 Qantas points. But there are catches.

RateCity analysis found that the highest joining points bonus for Qantas frequent flyer credit cards was for the Qantas Money Qantas Premier Titanium. However, as the name suggests, this is a premium card with a minimum income requirement of $200k and an annual fee of $1,200 – the highest on the market.

There may be expensive hoops to jump through with any frequent flyer credit card you’re considering applying too, including annual fees and high minimum income requirements. Be sure you read a card’s terms and conditions, as well as the Product Disclosure Statement, for a full break down of these costs before you consider applying.

Big four banks’ Qantas frequent flyer credit cards

Data accurate as of 29.04.2020.

RateCity analysis has found that NAB offers the lowest purchase rate for a Qantas frequent flyer credit card at 19.99 per cent.

Further, if you’re looking to avoid fees, Commbank’s Ultimate Awards credit card has the lowest annual fee ($30) of big four bank credit cards connected to Qantas.

Is now the right time to take action?

Keep in mind that taking out a second credit card or moving to a lower rate card during the COVID-19 crisis and recession may be a difficult endeavour. Banks like Macquarie are not approving new credit card applications at the moment, and a second credit card can affect loan chances.

Before you apply, consider if this is the best time to take out a new credit card. If you’re struggling with debt, or if you’re facing issues with employment or your income, it may not be the wisest time.

Look at your budget and map out to see if you could afford a new credit card’s fees and costs right now. Doing some research around alternative options as a worst-case scenario may help you feel better prepared for the future.

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