Virgin Blue CEO John Borghetti has announced that the carrier will take on Airbus A330-200s for domestic flying, restructure the V Australia network, enter into a new relationship with Etihad Airways and dispose of its Embraer E-170 E-Jets as its full year net profit before tax came in within its guidance of $20-$40 million.
The airline group’s net profit before tax came in at $34.3 million, with a 13.1 per cent increase in total revenue to $2.98 billion, while operating expenses increased by 10.5 per cent to $2.89 billion. Its short haul operations recorded earnings before interest and tax (EBIT) of $127.6 million, which was up 88 per cent on the same time last year. Long haul services recorded an EBIT loss of $43 million for the year, which was a 39 per cent improvement.
“Achieving a $34 million net profit before tax in the current environment demonstrates that Virgin Blue’s domestic business has the capability to ride through market and economic volatility, and remain well positioned to extend its reach in key markets,” said Borghetti.
Operationally, group yield decreased by 7.1 per cent compared to the previous financial year, while load factor increased slightly to 79.8 per cent. Cost excluding fuel decreased by 4.9 per cent to 6.21 cents per ASK.
Announcing the profit, Borghetti also revealed the next phase of his ‘game changing’ strategy, with V Australia to cease its flights to Johannesburg and Phuket from February 2011, with the airline instead set to launch Sydney-Abu Dhabi services three times a week as part of a new alliance with Etihad Airways aimed at increasing its international reach. As part of that thrice weekly V Australia Brisbane-Abu Dhabi services are also planned from February 2012.
“The first step of this alliance will see Virgin Blue codeshare from V Australia to all Etihad Airways codeshares in October 2010, providing multiple destinations to the UK, Middle East and Europe,” explained Borghetti. “The agreement will also involve reciprocal frequent flyer programs where members can earn and redeem points on both carriers, and enjoy reciprocal lounge access. Together with our proposed alliances with Delta Air Lines and Air New Zealand, the Virgin Blue network will seamlessly extend its reach to many more overseas destinations, with little capital expenditure.”
In addition, the airline will next year add two leased A330-200s which will operate on services from Perth to the major East Coast capitals from the second quarter of next year. At a press conference Borghetti refused to be drawn on the product that would be offered on board the aircraft, but he confirmed that the aircraft would be operated by one of the existing Virgin Blue pilot groups rather than wet-leased from an external carrier. He also hinted that further A330s would be acquired in time, describing the selection of the aircraft for the VB fleet as a “no brainer”.
The two initiatives are also part of a wider strategy for the airline to increase its share of the higher yielding corporate market, with Borghetti saying that every percentage point increase in corporate market share would correlate to a one point increase in its yield.
Virgin Blue refused to give a profit forecast for the year ahead, and noted that volatile market conditions and competition was continuing to put downward pressure on its yields.
“If market conditions continue to be volatile, and the early signs of recovery seen at the end of fiscal year 2010 do not result in a consistent and sustainable upward trend, we do have flexibility to adjust capacity through lease returns and rescheduling of aircraft deliveries,” said Borghetti.
Borghetti also confirmed the airline’s plans to dispose of its six 78-seat Embraer E-170 E-Jets. “The Embraer [170] on the sectors we use … is not an economically viable aircraft for our use.” The airline’s 14 larger 104-seat E-190s will remain in service.
