Aviation

Virgin warns of dour FY19 result, as speculation around Velocity sale swirls

Huntley Mitchell

Huntley Mitchell

Virgin Australia has provided its earnings guidance for the 2019 financial year, and it’s not looking all that pretty.

The company expects underlying earnings to be at least $100 million down on the $64.4 million posted in FY18, which it put down to the uncertainty of revenue trading conditions in the domestic market, along with annual fuel and foreign exchange headwinds exceeding $160 million.

In a statement to shareholders, Virgin said 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.

While the company expects revenue growth of six per cent for the full year, it noted that growth has moderated throughout the second half, and now expects less than two per cent growth for the remaining two months of FY19.

Virgin said it was responding to changing trading conditions, having initiated a network review, and has made some immediate adjustments to capacity and the frequency of services to better align with demand conditions.

“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,” CEO Paul Scurrah said.

“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.”

The dour earnings guidance comes after reports on The Australian Financial Review and The Sydney Morning Herald surfaced that Virgin and its co-investor in Velocity Frequent Flyer, Affinity Equity Partners, are looking for potential buyers for the rewards program, which is estimated to be worth more than $1.5 billion.

However, a Virgin spokesperson declined to comment on the reports when contacted by Travel Weekly, dismissing them as merely speculation.

The company has already made some major changes since Scurrah took the helm, which included a restructure of its Boeing 737 MAX order in the wake of the Ethiopian Airlines disaster and a shake-up of its executive team.

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