Virgin Australia returns to profitability as domestic market picks up

Virgin Australia has returned to profitability in the first half of 2017/18 amid an improved domestic market and a pickup in the resources sector.
On revenues of $2.179 billion, Australia’s second largest airline group posted net profit after tax of $4.4 million for the six months to December 31 2017, compared with a loss of $21.5 million in the 2016/17 first half.
Even better was the underlying profit before tax of $102.5 million, more than double the $42.3 million of the prior corresponding period. (Underlying profit before tax removes one-off items and the company regards it as the best indication of its financial performance.)
It was the highest underlying profit before tax result in 10 years, Virgin Australia said on Wednesday.
“The group has significantly improved its underlying financial performance compared to the prior corresponding period, recording one of our strongest ever first half results,” Virgin Australia chief executive John Borghetti said in a statement.
“This demonstrates the success of our long-term strategy to reposition the business and strengthen its financial foundation.
“However, there is more work ahead to ensure we continue to deliver.”
Virgin Australia is in the midst of its three-year Better Business program, which aims to reduce costs by $350 million a year by 2018/19 and improve the company’s balance sheet. It is also targeting improved operating efficiencies in crew and ground operations, as well as in maintenance, engineering, procurement and its supply chain.
Since the program was first announced in 2016/17, the airline has retired all 18 of its Embraer E190 regional jets, while six ATR 72 turboprops have also been withdrawn form service.

Further, the company has also paid down debt and boosted free cash flow.
The first half improvement was underpinned by Virgin Australia’s domestic network, which posted a 91.4 per cent increase in earnings before interest and tax (EBIT) to $153.1 million.
Yields rose 3.2 per cent, while revenue per available seat kilometre (RASK) jumped 7.4 per cent in the half.
Virgin Australia said its 2017/18 first half yield and RASK figures were its highest ever for a first half.
Capacity, measured by available seat kilometres (ASK), fell 2.2 per cent.
“This result was driven by capacity and network optimisation, the benefits of our fleet simplification program and improved corporate demand, including a pick-up in the resources market,” Borghetti said.
Virgin Australia’s international network posted segment EBIT of $1.4 million, compared with $800,000 in the prior corresponding period. Capacity grew 13.8 per cent as it launched Melbourne to Hong Kong nonstop services in July 2017 and returned to the Melbourne-Los Angeles route in April 2017.

And there will be more international ASK growth later in 2018, with Virgin Australia announcing it plans to commence nonstop Sydney-Hong Kong flights from “mid-2018” with Airbus A330-200 widebodies. Tickets will go on sale soon, Virgin Australia said.
Meanwhile, Virgin’s low-cost-carrier Tigerair Australia results were affected by the end of its international flights to Bali in March 2017 following an impasse with Indonesian regulators.
Tigerair Australia posted negative EBIT of $6.7 million in the 2017/18 first half, compared with positive EBIT of $6.2 million in the prior corresponding period.
The LCC is transitioning from an all-Airbus A320 fleet to a Boeing 737-800 operator.

Virgin Australia’s Velocity Frequent Flyer program, despite adding 600,000 new members in the half, posted a 9.8 per cent drop in EBIT due to the introduction of new credit card rules from the Reserve Bank of Australia and some investments in “new business development initiatives” that will launch in 2018/19.
Looking ahead, the Virgin has flagged further gains in the second half of the financial year.
“We expect the group’s underlying performance for the second half of the 2018 financial year to improve compared to the group’s underlying performance for the second half of the 2017 financial year,” Borghetti said.