Virgin Blue profit nose dives, as expected

By: Jason Whittaker


Virgin Blue Holdings today posted a net loss of $160 million for the year after weathering the toughest trading environment

Virgin Blue Holdings today posted a net loss of $160 million for the year after weathering the toughest trading environment the company has experienced yet.

The result is in bleak contrast to last year’s net profit of $98 million.

Virgin Blue Chief Executive Brett Godfrey says the result is in line with expectations, adding that the group expects to break even in the 2010 financial year.

"While airlines have been variously impacted by the global economic crisis, our approach was to respond swiftly and definitively to softening domestic demand," Godfrey says.

Key strategies included redeployment of domestic capacity to short haul international routes, internal cost saving and productivity initiatives and Virgin Blue’s first headcount reduction.

The initiatives delivered savings of some $90 million. The on-going program is targeted to deliver $150 million this financial year.

Total operating costs were up 22 percent to $2,665 million. They included:

  • Fuel costs, which increased $160 million (27 percent)
  • commissions and marketing costs, up by 41 percent to $182.8 million
  • aircraft ownership costs increased 22 percent to $325 million
  • labour and staff related costs increased 11 percent to $595 million, and
  • net financing costs increased $37 million, reflecting debt financed aircraft acquisitions in the year and lower interest income.


SHORT HAUL BUSINESS STRONG
Virgin Blue’s short haul business performed well; underlying earnings before interest and tax was $57 million, with other corporate operations contributing $21 million.

Despite intense competition in the domestic market and a 14.1 percent increase in capacity, yield was down 2.4 percent on the previous year.

Passenger numbers improved between May and July.

"Whilst it cannot be considered a recovery at this stage it does indicate some stabilisation at least in the domestic markets," the company says in a statement.

Passenger revenues increased 9.9 percent to $2,363 million and passenger load factor fell marginally to 79.2 percent, down 0.5 points.

Virgin Blue will reduce short haul capacity by around 5 percent over the coming year, through lower utilisation flying.

LONG HAUL DRAIN
In its first four months of operation, VAustralia delivered underlying earnings before interest and tax loss of $64 million.

"Including one off costs for foreign exchange and start up costs, the earnings before interest and tax loss was $124 million, reflecting the difficult long haul environment compounded by the US centric focus of the launch routes," the company says in a statement.

Total revenues were $69 million for the period and overall load factor for the same period was just 62.3 percent.

Godfrey is confident the long haul business will bank returns in future.

"After three years of development, we took a decision to proceed with the launch of our long haul international airline VAustralia as a group strategic investment for the longer term," Godfrey says.

Further strategic initiatives ahead include a proposed Virgin Blue/Delta Airlines joint venture, new routes for VAustralia and a continuing focus on productivity across the business.

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