Virgin takes a $100 million nosedive

Written on the 17 May 2019 by Business News Australia

Virgin takes a $100 million nosedive

Virgin Australia (ASX: VAH) has announced an expected loss of $35.6 million at the end of FY19 this morning.

The dive is expected to result from a $100 million earnings dip which the company says reflects domestic trading conditions and annual fuel and forieng exchange headwinds in excess of $160 million.

This shock announcement comes just three months after the group posted its strongest first half results since 2008, further emphasising the extreme loss expected to come at the end of FY19.

"Demand has weakened in both the corporate and leisure sectors, driven by lower levels of consumer and business confidence, consumer spending and the impact of the Federal Election," says Virgin in a trading update.

"The corporate sector has been affected by the timing of the Easter holiday period and has been slow to recover due to the impact of the Election."

The group says that revenue has grown by six per cent during the full year, but during the second half growth moderated with the airline now expecting less than two per cent for the remaining two months of the financial year.

Virgin Australia Group Chief Executive Officer and Managing Director, Paul Scurrah says the group is responding to new trading conditions following a network review.

"While we have continued to grow revenue, this announcement shows that our business needs to become more resilient to challenges such as weaker demand, high fuel prices and the foreign exchange environment," says Scurrah.

"There is a lot of work being done to develop our new strategy that will help position the Group for long-term success. In the meantime, we are focused on short-term improvements including capacity and network reductions to ensure we are better meeting current demand from the corporate and leisure sectors."

This trading announcement follows the group's strongest first half earnings results since the 2008 financial crisis in February this year.

The company said at the time that the strong result was driven by solid performance in the company's domestic airline business, supported by a stable market, and buoyed by effective cost control.

Underlying profit before tax in 1H19 was up 37.1 per cent to $112.3 million despite $88.2 million fuel and foreign exchange headwinds.

Borghetti recently departed as CEO of the company, with Scurrah coming in to replace him at the end of the first half.

Over the last few years Virgin has struggled to turn a profit, recording a $653.3 million loss after tax in 2018, a $185.8 million loss in 2017, and a $224.7 million loss in 2016.

In 2018 Virgin also failed in an attempt to become a private company because none of its combination of majority shareholders wanted to buy the others out.

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Author: Business News Australia

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