CANBERRA: Virgin Australia airlines has gotten boom in domestic market but faces challenges overseas. Its losses from international operations widened to $50 million from the year-earlier $32 million largely because of intense competition on routes to southeast Asia and Europe.
To help turn around the international unit’s performance, the airline is changing frequency and timing of flights to Bali to better match demand, as well as install business class on aircraft that fly to New Zealand and the Pacific islands. It is also introducing new business-class seats on its Boeing 777 aircraft. Virgin posted a statutory loss of $48 million for the six months ended December 31, compared with a $74 million loss in the prior period. Revenue rose 6 per cent to $2.38 billion from the year-earlier period.
Chief executive John Borghetti said the company had increased yields in the domestic market despite “ongoing subdued consumer sentiment which continues to impact overall demand”. Virgin also boosted its cash position to $1.1 billion in the first half, from $784 million as at the end of June. It previously disclosed that it had posted an underlying pretax profit of $10.2 million for the first half, compared with a $49.7 million loss previously. That result included the impact of losses for the half from Tigerair Australia, which it now owns outright. However, in a promising sign, Tigerair made a slim pre-tax profit in the second quarter.
Virgin had to issue quarterly earnings earlier this month because one of its major shareholders, Singapore Airlines, releases its figures every three months and now accounts for its interest in the airline in its own results. Air New Zealand has a 25.9 per cent stake in Virgin, followed by Etihad (24.2 per cent) and Singapore Airlines (19.8 per cent). Richard Branson’s Virgin Group has a 10 per cent holding in the airline he co-founded.
The three airline shareholders each have one seat on the board, which have been filled by their respective CEOs. However, Etihad chief executive James Hogan has decided to step down from the board due to other commitments preventing him from devoting enough time to the role. Mr Hogan’s position will be filled by one of his direct reports, Bruno Matheu.
One of the biggest concerns for investors has been the possibility of tension arising on Virgin’s board from the CEOs of its three largest shareholders each holding a directorship. Shares in Virgin have surged almost 32 per cent to 47.5 cents since October when oil prices began their downward spiral.
However, the increase in the tightly held stock has been less spectacular than that for Qantas, whose share price has more than doubled over the same period.While the oil price rout has put a rocket under airline stocks worldwide, the full benefits are yet to flow to their bottom lines because most are locked into fuel hedging contracts. Virgin benefited by just $3 million in the first half from the drop in oil prices due to the nature of its hedging program.
