Virgin Australia’s first half financial figures suggest that while Tigerair Australia is still a drag on the airline group’s results, the low-cost carrier may have taken the first steps on the path towards putting years of losses, a safety-related grounding and poor reputation for customer service behind it.
John Borghetti says the transformation of Tigerair from a loss-making budget carrier to one that will eventually make a positive contribution to the Virgin group is progressing ahead of schedule.
Virgin’s first half accounts showed Tigerair had a statutory loss before tax of $24.8 million for the six months to December 31 2014.
However, the picture was a bit brighter late in the half, with Tigerair achieving an underlying profit before tax of $0.5 million for the second quarter of 2014/15 – its first quarterly profit since December 2010 – amid strong revenue growth.
“Tigerair Australia has delivered an improvement in financial performance, recording a $6.7 million reduction in loss before tax on the prior corresponding period and achieving profitability in the second quarter of the 2015 financial year,” Borghetti said in a statement.
“We expect to see continued year on year improvement.”
Revenue rose at 18 per cent in the half, three percentage points above the growth in capacity as measured by available seat kilometres, Borghetti told reporters at Virgin’s first half results presentation in Sydney on Thursday.
Virgin’s half year accounts showed Tigerair had revenue of $205.5 million in the six months to December 31.
Meanwhile, Tigerair chief executive Rob Sharp and his team have also lifted the carrier’s on-time performance seven percentage points to 81.8 per cent during the six months to December 31.
“What we have seen is a turnaround by any description,” Borghetti said.
“This is a good story and full marks to Rob and his team.”
Virgin moved to 100 per cent ownership of Tigerair on October 16 2014, having previously held 60 per cent, and has pledged to bring the airline to profitability by the end of 2015/16.
“We are still very confident of that. If anything it might be sooner,” Borghetti said.
The improvement in Tigerair’s operations was achieved amid ongoing subdued consumer sentiment and weak demand growth in the local market.
This was particularly the case for leisure travel, the market segment that Tigerair was focused on and where it competes with Qantas’s low-cost subsidiary Jetstar.
Borghetti said the recent goings on in Canberra had played a role in keeping the local market sluggish.
“The leisure part of the market is the difficult one,” Borghetti said.
“Certainly some of the issues that are around Canberra play a part in that.
“You can throw that in where you like – well it’s government stability, or you can say well, you know it’s the Senate or it’s the independents but it doesn’t really matter because in the end it affects sentiment.”
While Borghetti reiterated Tigerair would eventually be deployed on international routes, the Virgin chief executive and Tigerair board member declined to offer any timeframe or potential destinations.
“Where and when I would like to keep up my sleeve a little bit longer,” Borghetti said.
