Virgin Australia posts 2017/18 first quarter profit, expects further improvement in period ahead

Virgin Australia has equipped the first of five Boeing 777-300ERs with inflight internet Wi-Fi. (Rob Finlayson)
Virgin Australia has equipped the first of five Boeing 777-300ERs with inflight internet Wi-Fi. (Rob Finlayson)

Virgin Australia has posted a second consecutive quarter of underlying profit, with further improvement expected over the next six months as its transformation program supported an improved bottom line.

The airline group achieved underlying profit before tax in the vicinity of $14.4 million for the three months to September 30 2017, a turnaround of $18 million from an underlying earnings before tax loss of $3.6 million in the prior corresponding period.

The positive result for the first quarter of 2017/18 announced in a trading update to the Australian Securities Exchange (ASX) on Wednesday follows a profitable fourth quarter of 2016/17, again at the underlying profit before tax level.

And in terms of the outlook, the company has guided the market to expecting an improved performance in the second and third quarters of 2017/18, compared with the prior corresponding quarters in 2016/17.

“I am pleased to confirm today that the positive trajectory from the end of the 2017 financial year has continued,” Virgin Australia chief executive John Borghetti told shareholders at the company’s annual general meeting in Brisbane on Wednesday in prepared remarks.

“Our positive performance trajectory and the improved revenue performance since April 2017, along with the group’s current held forward sales position, we expect that the group’s underlying performance for the second and third quarter of this financial year will continue to improve compared to the second and third quarter of the 2017 financial year.

“This would represent four consecutive quarters of underlying performance improvement for the group.”

In August, Virgin Australia reported a statutory after tax loss of $220.3 million for the 12 months to June 30 2017, an improvement from a loss of $260.9 million in the prior corresponding period. However, the figures published at the time showed a positive fourth quarter of 2016/17.

The airline group said at the time the result was impacted by subdued domestic market and one-off charges as its fleet on 18 Embraer E190 regional jets and eight ATR turboprops were withdrawn.

As part of efforts to improve the bottom line, Virgin Australia was in the middle of its three-year transformation program (dubbed “Better Business”) that was targeting $350 million in annual savings by the end of 2018/19 through simplification of the fleet and more operational efficiency, among other measures.

The company has also sought to bolster its balance sheet through paying down debt and boosting free cash flow.

“The Better Business program continues to track ahead of schedule,” Borghetti said.

A screenshot of Virgin Australia chief executive John Borghetti on the webcast of the company’s 2017 annual general meeting. (Virgin Australia)
A screenshot of Virgin Australia chief executive John Borghetti on the webcast of the company’s 2017 annual general meeting. (Virgin Australia)

Virgin Australia’s trading update announced to the Australian Securities Exchange (ASX) showed the company improved revenue 5.7 per cent in the first quarter, compared with the prior corresponding period.

Meanwhile, Virgin Australia’s domestic network grew revenue per available seat kilometre (RASK) 8.8 per cent, while load factors rose 3.8 percentage points to 81.4 per cent as capacity, measured by available seat kilometres (ASK) fell 3.3 per cent.

“We are managing capacity prudently,” Borghetti told reporters during a conference call following the conclusion of the AGM.

On the international front, Virgin Australia’s overseas flying experienced a 17.7 per cent jump in ASKs as the airline started Airbus A330-200 flights between Melbourne and Hong Kong in the quarter and resumed five times weekly Melbourne-Los Angeles services with Boeing 777-300ERs.

The capacity increase was not quite matched with demand, with revenue passenger kilometres (RPK) rising 14.2 per cent. As a result, load factors eased 2.5 percentage points to 82.3 per cent.

Borghetti said Virgin Australia’s Hong Kong services – which will increase from five times weekly to daily later in November – was performing well, particularly with passengers from China travelling to Australia via Hong Kong as part of the partnership with Hong Kong Airlines.

“Our loads are good, I’m very happy with the way our Hong Kong services are going,” Borghetti said.

Asked when Virgin Australia would announce more flights to Hong Kong or begin previously mooted nonstop services from Australia to mainland China, Borghetti said: “The best answer I can give you is next year.”

“We are working hard in getting additional slots in a couple of cities,” Borghetti said.

“I would like to think that by this time next year we will have slots. Now I won’t say which city that will be but we will have slots.”

Borghetti said any additional flying to Hong Kong or mainland China would be undertaken by Virgin Australia’s fleet of six A330-200s, which are currently being used on Melbourne-Hong Kong as well as on trans-continental services between Perth and Australia’s east coast capitals.

Passenger numbers were up but capacity down at Virgin Australia’s low-cost carrier (LCC) unit Tigerair Australia.

The LCC’s first quarter traffic statistics showed ASKS fell 8.4 per cent in the quarter, while RPKs tumbled 8.3 per cent. The numbers reflected the sudden end to its international flights to Bali from Adelaide, Melbourne and Perth earlier in 2017 after a dispute with Indonesian authorities regarding its operating permit to fly to the popular tourist destination.

However, total passengers carried rose 3.2 per cent and load factors increased 0.2 percentage points to 88.6 per cent, suggesting Tigerair Australia was continuing to expand in the domestic market.

Meanwhile, Borghetti said the airline was expected to switch on inflight internet Wi-Fi on flights between Australia and Los Angeles later in 2017. It will be the only Australian airline to offer Wi-Fi on international services.

“I’m pleased to say that the fit out of our first Boeing 777 aircraft began last month and that we plan to offer Wi-Fi on selected flights between Australia and Los Angeles by the end of this year,” Borghetti said.

Comments

  1. Scott says

    Been a slow process since the transformation 5 years ago for Virgin, but those figures look like the start of green shoots for the airline, while not dramatic profits they are building slowly which is great for our industry to have two stable Aviation groups, vs one domination operation.

  2. David says

    History has shown Australia struggles with more than two airlines. we now have four, albeit two offshoots to Virgin and Qantas. Maybe Virgin’s financial problems are a reflection of this?

  3. Martin says

    It’s a relief to find a article that is more appropriately focused without the privatization speculation.

  4. says

    @David
    Virgin struggles because of the terrible choices that management has made with fleet choices, inefficient systems/processes and a top heavy overpaid management.

    Couple all of that with the ‘bean counter’ attitude to looking after staff, i.e. “cut their terms and conditions” while giving ourselves pay rises reflects the inherent flaw with Virgin and Tigerair! No vision other than the vampire policies of overwork the front line staff at all costs!

    Maybe instead of boosting CEO’s wages e.g. Tigerair boss Rob Sharp went from 900k to 1.4M per year, and not so much as a thankyou to the staff that get treated like crap with pay and conditions! LOL

    Typical boring management style that only leads to poor customer service and the good front line staff leaving!

  5. Rocket says

    We’ve heard this all before. Years ago an organisation was either in profit or loss.

    Now, overpaid and incompetent management line their pockets while screwing staff and hide their crappy results in weasel word rubbish like “free cash flow positive” and “negative cash flow”.

    Reality check to VA management. You are being paid millions and to suggest things are looking up with a measly and laughable result after. 5 years of losses is a joke. Start crowing when you’re making profits sufficient to offset the billion or so lost in the last 5-6 years.

    Otherwise it’s all rubbish. There’s always an excuse, always a new set of weasel words to use as an excuse while aeroplane leases are paid while the aeroplanes are parked against the fence and millions being paid to other operators to do the flying because of pathetic or non existent planning.

    $14m… gee, let’s not get crushed in the rush to cash in the profit on shares…

  6. Martin says

    Why the management of an ASX listed company would want to sell off what little free float is left for Aussies is baffling to me. You don’t here from any of the major shareholders wanting to privatise, it seems like all the talk is coming from the Chairwoman. The board should be looking at what potential pathways there are to increase the free float up to at least 10 percent.

    The ASX listing rule requiring VAH to have too many independent board members creates an unfortunate incentive for privatisation.

  7. Adrian P says

    How many passengers would stop flying this airline if they ditched the Virgin Brand and the associated royalties?
    When there is so little competition in the domestic market.

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