Virgin's push for higher-yielding airline passengers pays off with A$26.5m drop in net loss

Virgin Australia Group, Australia's second-largest airline, has narrowed its net loss for the half-year by A$26.5 million owing to cost-cutting, an easing in its battle with Qantas for the domestic market, and a drop in oil prices.

The statutory net loss was A$47.8 million for the six months ending Dec.31, compared to a loss of A$74.3 million for the previous corresponding period, the ASX-listed company said in a statement.

First half underlying profit before tax was A$10.2 million, compared to a loss of A$45.4 million in the previous period, including the impact of Tiger Air's performance since it was fully taken over by the airline in October last year. There was a turnaround in underlying profit for Tiger Air of A$500,000 for the second quarter of this half and more improvement is expected in the second half.

Virgin Australia chief executive John Borghetti said the significant improvement in the first-half results was primarily driven by continued progress in getting yield growth of 3 percent in the domestic market and executing its five-year A$1 billion cost reduction programme.

"The performance of the international business has been impacted by increased competitive pressure in key international markets. Virgin Australia Group will be implementing a series of initiatives to improve the performance of this business," he said.

These initiatives include introducing business class flights on the Tasman and Pacific Island routes to drive further revenue growth and integrating management of the New Zealand operations into the rest of the international business.

Total group revenue increased 6 percent to A$2.37 billion compared to the previous half, including A$75.5 million from Tiger Air since Oct. 17. The airline said while growth in the leisure and international segments remained constrained, the business delivered further growth in the corporate, government, charter, interline and codeshare segments. It is on track to hit its target of 30 percent of domestic revenue from the corporate and government sector by the end of June 2017.

Air New Zealand is a cornerstone shareholder and one of many airlines with a code-sharing agreement in place with Virgin, which has morphed from a low-cost carrier to one where passengers can opt for no-frills or pay more for full-service in a bid to gain business market share from Qantas.

Virgin had around a A$3 billion benefit from declining oil prices compared to the previous corresponding period due to hedging it had in place, with a A$4 million loss in the first quarter followed by a A$7 million gain in the second quarter. Based on the group's current hedging, it expects to see further benefit in the second half.

Borghetti said strengthening its balance sheet remained a key priority with the business achieving a strong total cash position of A$1.1 billion in the first half, up from A$738.8 million at June 30 2014. It raised US$300 million through the maiden issue of unsecured notes in the debt capital markets during the half. No dividend has been declared.

The company's shares are currently trading at A$4.75.

(BusinessDesk)