Will the new Virgin Australia 2.0 join Star Alliance?

An industry expert and loyalty program specialist sees plenty of upsides for Virgin to become part of a global airline alliance.

By David Flynn , July 21 2020
Will the new Virgin Australia 2.0 join Star Alliance?

Should Virgin Australia’s new owners look to maximise the airline’s competitive edge against Qantas and Jetstar, they could do much worse than to have the airline join the global Star Alliance group.

That’s the take of industry expert and loyalty specialist Mark Ross-Smith, CEO of Loyalty Data Co, who reasons that the benefits of partnering with the world’s largest airline alliance would far outweigh any initial and ongoing costs.

And while Virgin Australia 2.0 will adopt more of a mid-market positioning than be a full-service carrier, Ross-Smith says that “the value which a Star Alliance or SkyTeam tie-up could provide to a rebooted Virgin Australia would be a strategic move.”

“Virgin Australia could enjoy the best of both worlds with an alliance tie-up, by leveraging from Star Alliance marketing, bring new rewards options to Velocity members and playing with the big boys on the loyalty front… while the core airline business goes back to its roots and acts more like a hybrid carrier.”

Virgin Australia partners Singapore Airlines and ANA are cornerstone members of Star Alliance – as was former shareholder turned Qantas ally Air New Zealand – while US partner Delta Air Lines was a founder of SkyTeam.

Given that Australians love their frequent flyer points, and that Star Alliance has had no local presence since the collapse of Ansett Airlines in 2001, Ross-Smith suggests that Star Alliance membership could be a deciding factor for travellers when choosing between Qantas and Virgin. 

The benefits of Star Alliance

Virgin’s domestic passengers would be able to continue earning Velocity points on Virgin Australia flights, or collect points in the currency of another Star Alliance member which they also belong to and regularly patronise, such as Singapore Airlines or United Airlines.

Likewise, the points of those Star Alliance siblings could be used to book reward seats on Virgin Australia flights – and once international travel returns, Velocity members could use their points to book onto flights of any other Star Alliance member.

How'd you like to use Velocity points to book on Star Alliance member airlines such as Swiss?
How'd you like to use Velocity points to book on Star Alliance member airlines such as Swiss?

Alliance membership also makes for consistent and reliable delivery of top-tier frequent flyer perks such as lounge access, priority check-in, security and boarding and a higher checked luggage allowance across all members.

All this, of course, comes at a cost to each member airline. 

How much does it cost to join Star Alliance?

While there’s no up-front fee to join an airline alliance, membership comes with a series of unavoidable practical costs.

This includes upgrading and integrating an airline’s booking and IT systems to work with the alliance family, as well as necessary marketing and promotional expenses in adding the alliance’s logo to everything from airport signage to marketing and advertising templates.

Once they have a seat at the table, airlines contribute an annual cost based on how much flying they do, so that larger carriers pay a higher proportion than smaller carriers.

Access to international Star Alliance and member airline lounges is another family perk.
Access to international Star Alliance and member airline lounges is another family perk.

There’s also a cost in the ‘earn and burn’ proposition involving the frequent flyer points of other alliance members.

“When a Lufthansa Miles&More passenger flies with Virgin Australia there is effectively a ‘loyalty commission’ paid to Lufthansa based on the ticket flown,” Ross-Smith explains.

“Virgin would also need to provide award seat access to all alliance airlines, although Velocity members would obviously always retain priority access to award inventory.”

An added wrinkle in the Virgin+Star story could be the veto power of Star Alliance member Air New Zealand, which as noted above holds a domestic partnership with Qantas, following a well-documented falling out between the airlines under former CEOs John Borghetti and Chris Luxon.

Upsides for Virgin Australia

 But while airlines understandably remain "fixated on costs, including alliance fees,” Ross-Smith says that membership would open up a raft of revenue-raising benefits.

In the post-coronavirus travel landscape this would include “increased traffic into Australia, as the 26 Star Alliance airlines would effectively act as a pseudo- marketing arm, and increased distribution channels to sell award seats, the preferred airline for the 150M+ Star Alliance loyalty program members worldwide."

Ross-Smith says that Star's marketing muscle would channel overseas travellers onto Virgin Australia.
Ross-Smith says that Star's marketing muscle would channel overseas travellers onto Virgin Australia.

Virgin Australia would also be able to realise revenue from selling award seats, primarily on its domestic flights, to partner airlines.

“With 26 other airlines selling VA’s seats, it effectively becomes a new distribution channel and one that alliance member airlines will look to tap into to accelerate the recovery.” 

“Additionally, the greater utility of Velocity points for members – being able to redeem them on 26 new airlines – provides Velocity with greater leverage to increase the cost-per-point” with credit card partners such as banks, “boosting the value of the Velocity business.”

“Velocity points may become more attractive, and thus, increase points volumes with banks and providing increased cashflow for the business.”

As Australian business travellers and frequent flyers, how would Virgin Australia joining Star Alliance influence your decision to travel with Virgin or Qantas?

David

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

24 Aug 2011

Total posts 748

I guess they may see some attraction but it would depend on the cost of membership. It would also depend on what relationship they see with DL which is probably a better partner than the perennially ordinary UA.

It is possible that Star (and Skyteam) will see themselves as weakend by Covid and keen to attract a member in a part of the world they are obviously currently deficient and will offer a deal. I get the feeling that Bain will be dollar driven so not interested unless it adds value to their investment.

Global alliances are very much a construct of the '90s and not 100% relative 20+ years later. Lots of airlines both within and outside of alliances have made their own bilateral arrangements such as QF/EK, NZ/CX etc.

Virgin Australia - Velocity Rewards

13 Dec 2012

Total posts 48

I agree with the comments re UA, my preference is to always avoid them, I have found DL for a US Domestic airline reasonable value and the relationship with VA has worked for me.

Virgin Australia - Velocity Rewards

24 Jan 2018

Total posts 327

Yep. if (big 'IF') a truly seamless alliance was struck with Delta, VA could pick up a lot of inbound US travellers and trans-pacific travellers flying direct to BNE or MEL (Yanks don't want to enter via SYD when wanting to go to QLD or VIC). But it will depend heavily of Delta's portal allowing Skyteam members to suffer 'no fuss or bother' and book airfares without needing to call for help.

bmc
bmc

Virgin Australia - Velocity Rewards

22 Aug 2013

Total posts 169

Joining *A would quite literally be all my dreams come true. I regularly fly to Europe and Asia. Opening up all *A partners for flight options and reciprocal benefits would be amazing.

bmc
bmc

Virgin Australia - Velocity Rewards

22 Aug 2013

Total posts 169

As far as *A or SkyTeam it would seem to depend if your main international flight destinations are east to the US or west to Europe. I didn't mind UA business when I flew it previously but as I have no desire or need to travel to the Americas I'd much rather a *A tie up.

21 Jul 2020

Total posts 2

If VA gives up most of their long haul network particularly LAX, the DL JV will become redundant which would clear the most obvious obstacle of joining Star Alliance. Of course, both NZ and VA CEO's need to sit down and discuss renewed partnership which is the most logical partnership in this part of the world.

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 240

Bain would do what's best for Bain by maximising their return on investments, with no influence from the previous ownership group. Any past or present partnerships would be out the window as VA does a reset.

Given that Bain (a USA company) had been reported in the media by previously not ruling out a return to long haul by storing the owned 77Ws for the meantime (until COVID Border Restrictions start to subside), they will decide on the path that would maximise their return on investment.

Alliances would be down the list of their priorities considering they're returning with a all-737 fleet for the short term foreseeable future.

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 240

Also to add, considering that UA had recently closed their LAX Long-Haul base for the foreseeable future, leaving only SYD and LHR using crews from other hubs. If in the less likely case that VA and UA does draw up a partnership, it does open the opportunity for VA to fly the SYD-LAX route using their owned 777s on UA's behalf.

This would save crew expenses (dead-heading from other hubs) for UA, whilst allocating the 787s elsewhere on the "more profitable" routes on UA network) whilst UA concentrates on Australia (SYD, MEL and potentially BNE) - SFO, which is the real money earner for UA, as SFO is UA's main hub.

Virgin Australia - Velocity Rewards

06 Aug 2017

Total posts 46

If done properly, there could be huge upside for Air NZ if Virgin joins Star Alliance, especially if Virgin gives an undertaking to not fly trans-Tasman in return for Air NZ's support. It would assist Air NZ in its rebuilding after COVID-19, not least by ensuring that the trans-Tasman market (a couple fo fifth-freedoms excepted) would be effectively a money-spinning duopoly with Air NZ as its dominant player.

I can't see how Virgin could possibly make money from flying Trans-Tasman anyway, now that they've sacked their entire NZ workforce. Unlike Qantas (JetConnect) and Air NZ, Virgin would have to use an Australia-based workforce to compete against lower-paid NZ-based crews.

If VA joined Star Alliance under this scenario, Virgin and Air NZ would both be big winners and there might even be some upside for Qantas as well given the permanent exit of VA from one of their most important markets.

Virgin Australia - Velocity Rewards

28 Jul 2020

Total posts 2

It was always going to happen letting go of nz based crew, very sad but financially saving millions per year. they were away from home base for 5 nights per block 6 day trip, which meant they had hotel costs and overnight allowances for 5 nights whereas using Australian based crew they will be rostered day return trips unless disruptions occurs due to weather or engineering . I would imagine they will change the schedule to morning departures only to really implement the savings.

QF

11 Jul 2014

Total posts 487

Virgin is a cash cow when it comes to partnerships, Singapore depends on them and so does Delta. I think Bain will drive a hard bargain for any other airline to use them to get bums on international seats.

Virgin Australia - Velocity Rewards

10 Nov 2011

Total posts 132

I'd love it if they joined *A. For trips to Asia and Europe I much prefer the option to fly back to SYD during the day with SQ. The partnership has been ok, but it doesn't do much for you once you're out of the main hub routes. *A options for lounge access and earn and burn would be great.

13 Feb 2020

Total posts 3

It would be the final piece for Star Alliance to have a presence in nearly every country and territory exceptionally sence Carabian Airlines is already in the process of joining Star Alliance

Virgin Australia - Velocity Rewards

04 Sep 2018

Total posts 12

*A or Skyteam, both are fine with me. The reality is that Virgin can become competitive in the hybrid model by working with an alliance.

*A makes sense with Singapore as a partner. While I suspect Delta would have invested in VA prior to covid, I no longer believe they have the cash to do this so Skyteam seems unlikely. Delta have also publicly talked about the move away from formal alliances.

So all in all, if Air NZ and VA can kiss and make up, this would give *A a real possibility while keeping VA competitive against QF. Bain, please go down this route! :)

21 Jul 2020

Total posts 1

Being in an airline alliance at its base actually carries very few formal partnership arrangements, which must individually be given the competition thumbs up whether in an alliance or not. The difficulty in this case i would thing would be US antitrust immunity. VA and DL took ages to have this approved and to do so again from scratch with UA would be a big push. The other consideration is what level of service VA2 will commit to, as Global airline alliances are, amongst other factors, based around a principle of continuity of service.

21 Jul 2020

Total posts 6

Sky team is the better option, lines up with Delta.

22 Sep 2013

Total posts 6

I would support a *A move by VA. The domestic fares flying Air NZ and Qantas in each other's markets are ridiculously expensive compared to the Air NZ/VA alliance days. If VA is to operate a hybrid model then this should also tie in with Air NZ's current hybrid model. Hope springs eternal if the CEO's can keep their egos at bay this time!

28 Feb 2014

Total posts 18

I travel a lot to the US, and for me Skyteam would be the better optoin, as DL is far and above the best of the US carrier I have travelled on. The Skyteam options for Euopre are pretty good with KL/AF, and Asia is a interesting mix. However, the logical option would be Star alliance. This is going to be a interesting 12 months at Virigin....

Etihad - Etihad Guest

28 Feb 2019

Total posts 8

I would think VA being in the camp on NOT-QANTAS/OW will already be getting the majority of domestic Aus traffic that SQ/DL/UA brought into the country. Even tearing up the deeper agreement they had with DL and SQ won't change much. DL and SQ will hardly be wanting to push that traffic into QF.

I suspect nothing will change on this front for many years if at all.

Virgin Australia - Velocity Rewards

07 Dec 2014

Total posts 164

Not that Star Alliance membership was such a great success for Ansett...

At this point, I have already abandoned Virgin and switched to Kris Flyer; status be damned, I will collect and spend points and dollars where they are best value. And so I already have access to Star Alliance inventory - how many VA members are in the same position (having transferred points across).

Virgin obviously need to get their house in order first before joining any new alliance. I wouldn't be spending a dollar with them until they have their ownership confirmed (their very recent sale fares going out to October and December are a joke when its still not clear the airline will exist in a month's time). Even then, I'm not sure they'll get my custom again given my dissatisfaction over the last few months with how they have handled flight cancellations.

19 Jun 2020

Total posts 13

A huge benefit for *A would be a renewed connection to Sth America via AKL/EZE with NZ (possibly GIG or GRU also in the future). There are stacks of Brazilians in Australia (especially Brisbane) who would take advantage if the fares are cheaper, as would I. LATAM going to Skyteam is a wildcard here though.

To Asia/Europe, SIN is a better hub than say SGN/HAN with Vietnam Airlines (could depend on the new airport in Ho Chi Minh but I doubt it), also SQ frequency is better.

For the US, the difference is airline choice, not access.

For Canada, *A is a clear winner with direct flights.

*A is a winner for Africa as well with Ethiopian.

AT
AT

Qantas - Qantas Frequent Flyer

14 Sep 2012

Total posts 307

The paragraph I'm focusing on is "how much does it cost to join Star Alliance", and that basically sums it up, there is absolutely no way anyone at VA C-suite or the new owners would approve this kind of expenditure at this time.

Joe
Joe

03 May 2013

Total posts 514

Let's get a signature on paper first eh?

Alliances or glass Vs plastic cups are currently irrelevant in the scheme of things.

16 Nov 2018

Total posts 20

I feel that major alliance should be in the past now. Strategic partners should be picked based on destinations and network. Exit from Skyteam for CZ was a good move. And look at those new friends CZ has now from different alliances. On the other hand, OW members CX and QF, I wouldn't call them real friends to each other.

bmc
bmc

Virgin Australia - Velocity Rewards

22 Aug 2013

Total posts 169

*A provides what I use regularly: Singapore, ANA and Lufthansa. This is why a *A tie up with VA2 would work for me. I can totally see why others see more use with a Skyteam tie up to make use of Delta. Horses for courses

15 May 2019

Total posts 3

With Air Canada being part of the Star alliance, it certainly makes their direct flights between Melbourne, Sydney, Brisbane and Vancouver a lot more attractive.

27 Jun 2020

Total posts 12

I would love it!!

I fly United exclusively ex Aspen to Australia three ones a year and Virgin exclusively with in Australia and to Fiji or NZ.

People give UA a bad rap but 1.2 million personally bought miles later they treat me right and I always seem to find the flights and routes I need.

28 Feb 2018

Total posts 5

From the owners operating perspective, I suspect they will be reluctant to pay for an alliance membership. I assume their first preference will be to carve out new partnerships with Singapore, Air NZ, a Gulf carrier (is Etihad still an option?) and an American carrier... then review .

From an Aus leisure travel perspective, I think Star Alliance makes sense, although the lack of a Gulf carrier is a worry.

From a business perspective, if you assume that USA travel will still be the focus after COVID, then the option to partner with another airline (instead of UA via star alliance) is compelling. If they go all-in with Delta, then maybe Skyteam makes sense... but I'm not sure that there are any Asian carriers in Skyteam that would appeal to business travellers much.

From an O/S partner customer perspective - I wonder what their assessment of the Chinese and Indian markets will be post COVID. Does anyone have much insight into the profitability of tie-ups with Chinese and Indian carriers? I'm not sure who is more attractive out of the Chinese carriers on Skyteam vs Star Alliance... Skyteam does not have an Indian carrier, which I find surprising.

From a FF flyer perspective... my gut feel is that they need a boost to compete with Qantas. I think Star Alliance would seem to be the most appealing choice for customers and retail partners.

Virgin Australia - Velocity Rewards

10 Nov 2011

Total posts 132

It's only a matter of time before *A also doesn't have an Indian carrier, once the Indian Gov finally accept that they can't even give it away and just let the thing implode. In that scenario, would be interesting to see if Vistara step into *A.

Alliance dynamics are changing, and alliance partnerships aren't what they once were. There's a lot more freedom to explore bespoke partnerships--the Air New Zealand - Cathay tie-up comes to mind. If VA did join *A, I'm not convinced they would have to give up all their other partners, even Delta. There's a big incentive for United from domestic feeder traffic, even if they continue to compete against a Delta-VA joint venture. Air New Zealand was very happy with their VA arrangement, partners intact, and with JB out, I can't see them being a barrier either.


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