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Virgin back in the black as capacity war picks up

written by australianaviation.com.au | August 28, 2012
Virgin Australia has returned to profit as it continues to press its battle with Qantas.

Virgin Australia has reported an after tax profit of $22.8 million for the last financial year and will continue to press its burgeoning fare war with Qantas by adding more domestic capacity.

Virgin’s full-year profits represented a $90.6 million improvement over the previous year and came on a 20 per cent increase in revenue to $3.9 billion. The airline made a pre-tax profit of $82.5 million.

CEO John Borghetti said the results reflected a successful effort to lure corporate and government travelers away from Qantas. Virgin said it had met its goal of drawing 20 per cent of its revenues from the corporate sector a year ahead of schedule, with income from higher-yielding fares growing by 113 per cent last year. Codesharing revenues from Virgin’s overseas alliances, meanwhile, grew 158 per cent, while the airline’s Velocity Frequent Flyer program grew from 2.5 million members to 3.2 million.

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Virgin’s results come a week after Qantas reported a $244 million annual loss and canceled a tranche of orders for Boeing 787-9 Dreamliners.

Not all Virgin’s news was good, however. Despite reporting a full year profit, the airline lost $29 million in the second half as competition for business class passengers drove down fares by 25 per cent. Virgin’s announcement that it would boost domestic capacity by as much as nine per cent — mirroring a similar announcement from Qantas last week — means both carriers are likely to take a further hit as competition drives down margins.

Virgin seems unlikely to back away from the fight, however, with Mr Borghetti having said that the airline’s lower cost structure would make it better able to withstand a full-fledged fare war. The airline today said it would target unspecified productivity gains of $400 million over the next three years.

Virgin has already boosted its domestic capacity by 9.6 per cent over the financial year ending in June. That was mostly due to replacing Boeing 737-700s with 737-800s, adding larger Airbus A330-200 aircraft, as well as increased frequencies on key routes and the launch of its regional ATR-72 turboprop network.

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‘‘Our capacity plan during the year was focused on yield and margin improvement opportunities on strategic markets as opposed to an overall group market share goal. This strategy will continue,’’ Mr Borghetti said.

Like Qantas, Virgin did not pay a dividend or offer profit guidance, citing market volatility. Virgin’s stock has risen by nearly 70 per cent during 2012, compared to a 19 per cent drop for Qantas.

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4 Comments

  • JT

    says:

    Given Virgin’s lower cost base, supportive workforce and profitable startpoint, I think they are in the box seat right about now. What a masterstroke of genius John Borghetti executed when leaving QANTAS. Not only did he land on his feet, he also gets to rub the nose of his previous employer in it.

    If the unions don’t stop the negative campaign they are persuing against QANTAS, Virgin is going to be handed the domestic network on a platter, as ANSETT did for QANTAS back in 2001

  • ADO

    says:

    Agree 100% with JT. Virgin’s supportive work force is the key and they focused ALL focused on one thing—-THE CUSTOMER. Go Virgin.

  • Ben

    says:

    Agree with JT
    QF have been a tyrant in the airline industry since ansett collapsed. It’s great to see them not have everything their way. Virgin will go very far

  • GB

    says:

    Good to see things are finally getting back on track, but lets not forget the share price only 4 or 5 years ago was over $2.00 and they haven’t paid a dividend to its shareholders in years ??

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