Virgin Australia is on track to meet its 2017 financial targets after cost and capacity controls boosted underlying pre-tax profit and saw an improvement in 2015-16 earnings across all flying businesses.
The airline group reported an expected net loss of $224.7 million, driven by $440.5 million in restructuring charges related mainly to a fleet simplification program.
Virgin is reducing costs and restructuring its operations as it repairs its balance sheet. The fleet simplification program that has already seen it decommission its Fokker 50 fleet and start to reduce Embraer E190 and ATR numbers. Tigerair will also move from Airbus A320s to Boeing 737s over the next three years.
But its $41m underlying pre-tax profit, which strips out one-off charges and is the preferred metric of management, was up by $90.1m compared to last financial year. Group revenue rose 5.7 per cent to $5.02 billion while unit costs, excluding fuel and foreign exchange movements, were down by 1.9 per cent.
“This result was driven by continued improvement in earnings across all business segments not withstanding a weak operating environment,’’ Virgin chief executive John Borghetti said.
“Tigerair has delivered its first ever full-year profit one year ahead of schedule and Velocity is delivering consistent growth.’’
The group’s total cash balance of $1,123.8 million was up 9.3 per cent and will be further bolstered by the recent $852 million capital raising.
The all-important domestic operations saw underlying earnings rise by 45.8 per cent on the 2015 financial year to $162m on improvements in yield, unit revenue and underlying earnings margin.
Virgin Australia International remained in the red with a $48.8m loss but this was an improvement of 30 per cent on 2015-16 and included the $19m impact of volcanic activity in the first half.
Unit revenues and yield were down on the prior year due to the intense competition on the routes Virgin flies.
The airline has been fitting its Boeing 777 aircraft with new business and premium economy seats aimed at boosting yield and Borghetti said the international operations would realise the benefits from this in the current financial year.
Low-cost subsidiary Tigerair Australia’s maiden profit of $2.2 m was driven by an improvements in unit revenue, yield and underlying EBIT margin. Passenger numbers were up 11.6 per cent on the prior year.
Borghetti noted Tigerair led the low cost carrier market in terms of on-time performance, had revamped its website and started operations from Melbourne’s Terminal 4. It had also joined an international low-cost alliance and started international flights to Bali.
“Tigerair Australia’s customer satisfaction scores have increased across almost every aspect of the …. travel experience,’’ he said.
The Velocity frequent flyer program, in which Virgin Australia is the majority shareholder, saw revenue rise 37.4 per cent to $327.6m and earnings increase 8.5 points to $58.5m.
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