Virgin’s FlyBuys tie-up good for corporate market and bottom line

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If this weekend’s reports pan out to be correct that Virgin Blue is looking to partner with Coles’ FlyBuys programme–effectively creating a rivalry between the Qantas/Woolworths tie-up–the decision will be good for Virgin’s push into the corporate market as well as its bottom line.


Virgin Blue believes that if it can offer more ways to earn points outside of flying as well as appealing ways to redeem points (read: fly to Europe on Etihad), members will want to make Virgin Blue their preferred carrier. With Virgin expecting to price its business class cheaper than Qantas, companies will have all the incentives to purchase the flexible, high-yield fares Virgin is chasing, or so John Borghetti’s reckoning goes.


The FlyBuys deal’s potential positive affect on Virgin Blue’s bottom line is easy to see.


Those who delve into Qantas’ financial releases have noticed over the past few reporting seasons that the group’s highest performing segment is neither Qantas nor Jetstar but its frequent flyer programme. In the six months to last December the programme had an underlying profit before tax of A$189m compared to Qantas’s $165m and Jetstar’s $143m. In the middle of the global economic slump–six months to December 2009–the programme brought in $157m, $24m shy of what Qantas and Jetstar brought in combined.


Qantas’s partnership with Woolworths has greatly contributed to the programme’s financial growth, as Qantas statements have spruiked: “The development of the Woolworths partnership in particular has contributed incremental airline revenue as well as growth in Woolworths’ billings as the program matures. Those outcomes highlight the value of Qantas’ portfolio of businesses, and especially Qantas Frequent Flyer, in maximising the returns generated from the core flying business.”


(What remains to be seen is how much the Woolworths partnership will bring in once the initial new programme/member surge quiets down and plateaus out.)


The potential FlyBuys partnership would also bring the less quantifiable benefit of giving corporate passengers, who Virgin Blue is looking to sway from Qantas, extra value with their frequent flyer points in being able to earn points on everyday purchases. Virgin’s Velocity programme does not have the breadth of Qantas’ partners, although Virgin’s tie-up with Etihad gave a crucial boost. Forthcoming alliances with Asian carriers will further add to Velocity’s appeal, which is due to be over-hauled by the end of the calendar year.


The deal could also be a retentive incentive for  Virgin Blue’s leisure passengers, those not on corporate tickets and without elite status. Although Borghetti says Virgin Blue will not forget what has been the carrier’s traditional customer base, Qantas chief executive Alan Joyce says he plans for Jetstar to pick up the leisure portion Virgin will abandon in favour of an increasing corporate share: “We see great opportunities for Jetstar, particularly in the domestic market as our competition changes their focus…It is an opportunity Jetstar is seizing.”

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