Virgin Australia CEO, John Borghetti is leaving the airline in style – its best six months financial performance in over a decade.
The company (which over 90% owned by a group of foreign airlines and investors) said its December half-year net profit jumped to $74 million, from $4 million last year, as higher domestic airfares more than made up for a growing fuel bill and more losses from its international network.
The airline said that with underlying earnings up 37% at $112 million, its half-year result was the best in 11 years.
Total passenger numbers edged up 2% and revenue jumped 10% to $3 billion across the group. Average airfares rose 6% in the domestic market and by 3.4% on international routes. Both increases were well above the rate of inflation for the half of around 2%.
But losses from Virgin’s international network rose to $12 million in the half on an EBIT (earnings before interest and tax) basis – compared to a $2.7% loss a year ago.
The airline said its international business was hit by higher fuel costs and competitive pressure – particularly on its routes from Australia to Los Angeles.
Air New Zealand ended its codeshare agreement with Virgin in October and has now teamed up with Qantas instead, forcing Virgin to launch several new routes across the Tasman.
Virgin’s budget airline Tigerair Australia trimmed its EBIT losses by 3.6% to $8.3 million thanks to a 14% rise in airfares – again that is well above the 2% inflation rate in the half year.
Virgin said Tigerair’s earnings were hurt by higher depreciation costs as it reconfigured its fleet of airliners, while total passenger numbers fell 9% and revenue was flat at $302 million.
CEO John Borghetti said in his last interim statement that the result showed “our improving profitability after a significant period of investment and repositioning”.
Virgin has incurred huge losses over the last six years (in the billions of dollars) as it slowly moved from being a budget airline to becoming a full-service carrier that competes directly with Qantas.
“We’ve made solid progress in strengthening the financial foundations of our business,” Mr. Borghetti said in yesterday’s statement.
The improved result came despite an $88.2 million increase in higher fuel costs and foreign exchange (thanks to the stronger greenback).
“The Group’s hedging program provided effective protection against fuel price increases and the weaker AUD. Operating costs are hedged on a two-year forward hedging program to protect against changes in oil prices and exchange rates while retaining participation in favourable price movements through options,” directors said yesterday.
“Based on current market conditions and forward domestic bookings, Group revenue in 3Q19 is expected to grow by at least 7 percent on the prior corresponding quarter,” directors added in their statement.
Virgin shares rose more than 7% to 21 cents. The company is thinly traded because of the 90% held by the major shareholders.
