Virgin goes into administration: What happens to travel credit?

author-avatar By on April 21, 2020
Virgin goes into administration: What happens to travel credit?

Photo by Leio McLaren (@leiomclaren) on Unsplash

Virgin Australia has just announced it has gone into voluntary administration. What does this mean for customers' travel credits?

Virgin Australia (ASX:VAH) has entered voluntary administration, making the announcement this morning via the ASX. 

The move comes after the Federal government declined to cough up the $1.4 billion in bail-out money the airline requested, while the separate offers made by the Queensland and NSW State Governments fell well short of what was required. 

This does not mean the airline is gone for good: There's a difference between administration and liquidation. 

Administration is essentially the process of clearing a company's debts and ensuring it can continue operating when a new board comes in, to explain it as simply as possible. The company still exists, and can still carry out its essential functions. 

Liquidation is what can happen after administration when the company is unable to pay all its debts. It usually means the company will permanently stop trading and cease to exist.

Administrator Vaughan Strawbridge said the airline's intention is to restructure and re-finance the business and bring it out of administration as soon as possible.

"We have commenced a process of seeking interest from parties for participation in the recapitalisation of the business and its future, and there have been several expressions of interest so far,” said Mr Strawbridge.

Virgin Australia Group Chief Executive Officer Paul Scurrah meanwhile said the decision has been made to secure the future of the Virgin Group on the other side of COVID-19. 

"Australia needs a second airline and we are determined to keep flying," he said. 

"Virgin Australia will play a vital role in getting the Australian economy back on its feet after the COVID-19 pandemic by ensuring the country has access to competitive and high-quality air travel.”

Yesterday, we wrote about what happens to Virgin Velocity points should Virgin Australia go under (Velocity Frequent Flyer is a separate company and is not in administration).

Many of Velocity's 10 million members are rightfully concerned about what happens to their points should the airline collapse, so much so that the Velocity website crashed last night after too many people flooded to the points store. 

Virgin has also temporarily suspended points redemption for several weeks. 

While there's been much talk of what may or may not happen to rewards points, many consumers are also worried that the travel credit they hold with the airline will become worthless.   

What is travel credit? 

Travel credit is essentially a voucher that can be redeemed for flights, like a travel gift card. 

Airline's often offer customers travel credit if they have a credit card linked to that rewards program.

This travel credit is often in the form of annual fee, and can be in excess of $700 here in Australia. 

For example, The American Express Qantas Ultimate Card has an annual fee of $450, but allows customers to use this $450 as a one-off travel credit once a year. 

Additionally, Australian airlines have been offering travel credit to customers who have had to cancel their flights due to COVID-19.

On 18 March, Virgin announced: "Guests who no longer wish to travel can cancel their flight and retain the value of the booking as a travel credit."

This also applies to customers who booked Virgin Australia flights through travel agents or websites such as Webjet, although the cancellation has to be done through these third parties, rather than directly with Virgin Australia. 

What happens to Virgin travel credit in the wake of administration? 

As administration doesn't mean liquidation, you can still technically use travel credit:

  • You can use them to book future flights (for whenever we're allowed to fly again) 
  • You can use them to book current travel on one of Virgin's existing domestic flights (if you have essential travel, or are buying a ticket for someone's essential travel)

Australian Frequent Flyer Editor Matt Graham however said the future of Virgin Australia travel credits remain unknown. 

"It will ultimately depend on the outcome of the voluntary administration proceedings. It’s important to remember that Virgin Australia is not yet in liquidation and continues to operate flights," Mr Graham told Savings.com.au. 

"It brought in administrators early, to give the airline the best chance of restructuring so that it can come out of this crisis and continue flying in the long term. It is possible that the administrators could later decide to forfeit the value of travel vouchers, with those holding vouchers becoming unsecured creditors.

"But this is not yet the case.

"Down the track, if Virgin Australia ceased to operate, a credit card chargeback could become an option for those that paid for Virgin flights with a credit card."

As Virgin Australia confirmed in a tweet today, "travel credits remain valid". 

So you could redeem travel credit now for a future flight (such as 2021), in the hope that the new-and-improved Virgin Australia emerges from administration in a strong position. 

Fabian Micheletto, Director at business insolvency and advisory firm SV Partners, told Executive Traveller that administrators could decide to honour existing travel credits to preserve the company's image. 

"In the case of an airline operator, this could include the honouring - say, in part or possibly, in full – of any outstanding travel vouchers issued to consumers prior to the Administration," he said. 

So another alternative is to just hold your travel credit for now, in the hope that you'll still be able to use it on the other side of this crisis, even if it's not to the full value of what you were promised. 

Virgin 'likely' to honour travel credits 

Frequent flyer expert and Point Hacks spokesperson Daniel Sciberras told Savings.com.au he has received confirmation from Virgin that whether travel credits are honoured or not depends on the outcome of the administration proceedings. 

"Should Virgin Australia be successfully restructured, either as itself or another new airline, it is likely, but not guaranteed, that the new owners will honour the travel credits to entice travellers back to the restructured airline and to rebuild or build loyalty to the airline," Mr Sciberras said. 

"It is very unlikely that the travel credits will be honoured by any other existing airline today.

"However, should the airline not be able to be saved and falls into liquidation, then travel bank holders will rank as unsecured creditors of the company, which will unfortunately place them at the bottom of the pile in terms of receiving any benefits”. 


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William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.

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