The boost to airlines from lower fuel prices (as we have already seen with Qantas (QAN) and most major offshore airlines), showed up in the trading update from Virgin Australia (VAH) yesterday which revealed a vastly improved performance.
As well, the sharply lower pre-tax loss expected for the year to June (Virgin formally reports its results next week on August 7) of $49 million also reflects the favourable impact of cost cutting, the stronger performance from its low-cost offshoot Tigerair and an end for the time being to the capacity war in domestic markets with Qantas.
That all saw Virgin turn in a better result in the fourth quarter, reducing losses to $37 million from $109 million previously. The result includes the performance of Tigerair.
Virgin Australia chief financial officer Sankar Narayan said in yesterday’s update the latest result was a significant improvement in performance on 2013-14 and he expected a “continued positive trajectory” in the current financial year.
"The key highlights in this result have been our performance on non-fuel costs, success in attracting high yielding market segments and the improved performance of Tigerair Australia," he said.
The full-year loss for Virgin of $49 million compares with a loss of $212 million previously, and is better than the market had been expecting.
VAH 1Y – Virgin on the right path
Virgin said yields – or return on fares – from domestic flights were positive in the fourth quarter and that helped the airline’s bottom-line loss to $94 million for the year to June, down from the near $356 million loss in 2013-14.
Tigerair recorded an underlying loss of almost $10 million for the fourth quarter, compared with a loss previously of almost $26 million. Virgin says it expects Tigerair to break even by the end of the 2015-16 financial year.
Media reports yesterday said Virgin is expected to unveil plans next week to stem losses in its small international business, especially on the holiday routes to Southeast Asia.
This reportedly will involve replacing some Virgin flights on routes to destinations such as Bali with Tigerair services.
Qantas Airways is expected to report a $960 million underlying pre-tax profit for the 2014-15 financial year, thanks to cost cutting, lower fuel price and higher fares due to less domestic (with Virgin) and international competition. Qantas is due to report its full year results on August 20.
Virgin’s news had little impact on the share price which which edged up to 45 cents. There is only a small free float of shares because most of the issued shares are held by Virgin Group, Singapore Airlines, Air NZ and Etihad. Between them they control more than 70% of Virgin Australia.
