VIRGIN FLAGS A PROFIT RETURN

Written on the 7 August 2015

VIRGIN FLAGS A PROFIT RETURN AS competition heats up, Virgin Australia Holdings (ASX: VAH) has posted another full year loss and reassigned its flight paths, but confirmed it's on track to return to profitability.

The airline reported an underlying loss before tax of $49 million for the 2015 financial year - or statutory loss after tax of $93.8 million - which includes the impact of 100 per cent consolidated Tiger Airways Australia's performance from 17 October 2014.

The before tax figure represents a $162.7 million improvement on the 2014 financial year.

Virgin CEO John Borghetti says there are challenges on the international front, namely competitive pressure in South East Asian and long-haul markets, but the company is confident with its improvement plan.

Lower fuel prices and a value-added pricing strategy, competing directly with Qantas on measures like free luggage and food on the mainline domestic network, should help the growth trajectory.   Service seems to be paying off with Virgin winning a string of accolades in recent years, and experiencing its most successful Velocity Frequent Flyer year to date.

Virgin's return on invested capital increased from 1.4 to 6.1 per cent over the year, which Borghetti says will continue to remain a strong focus for the group.

"I'm pleased to confirm that based on current market conditions, all fundamental business metrics are on track for the group to return to profitability and report a return on invested capital in line with its cost of capital for the 2016 financial year," says Borghetti.

"The Virgin Australia Group's current cost of capital is approximately 10 per cent."

Notable changes going forward include Tiger's takeover on certain routes, including Perth and Phuket, and some to Bali to 'cater to the changing dynamics in the region'.

A bright point in today's results was that Virgin's acquisition of Tiger has paid off for the low cost carrier.

Tiger recorded an EBIT loss of $8.6 million from the beginning of its consolidation, 17 October 2014, to 30 June 2014. This is a $42.7 million improvement on the prior corresponding period.

Borghetti says the company's cost-saving target of $1 billion by end of financial year 2017 is fast being realised, now projected in excess of $1.2 billion by this date. The acquisition of Tiger will undoubtedly contribute to this.



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