Virgin loses millions, withdraws routes

Virgin Australia has announced it will withdraw from a number of routes after racking up another major loss for the 2015 financial year.

Virgin is pulling out of Bali and Thailand services, replacing most routes with its budget offshoot Tigerair in a bid to stop the bleed from its international operations, whose losses amounted to $69 million.

The airline will cut its services from Adelaide, Melbourne and Perth to Bali as of March, and instead use Tigerair on these routes.

Virgin is also taking the axe to its Perth-Phuket service from February, but has no plans to replace this gap.

However, Virgin will redeploy the Boeing 737 aircraft it has used flying to Bali and Phuket to trans-Tasman routes including Sydney-Christchurch and Melbourne-Christchurch.

The international operations reported an underlying pre-tax loss of $69 million for the year, compared with a $49 million loss a year earlier.

But Virgin said it expected the international business to be profitable by the end of the 2016-17 financial year.

“The Virgin Australia group has delivered a significant improvement in performance for the 2015 financial year, which reflects the positive trajectory of the overall business,” chief executive John Borghetti said.

“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.”

Domestic operations found themselves back in the black, notching up with a $111 million profit, highlighting a massive $210 million turnaround from the previous period.

Tiger Australia trimmed its losses to $8.6 million, a $42 million improvement on last year.

The Virgin Australia Group’s current cost of capital is approximately 10%.

As per reports from SMH, Virgin’s mounting losses stand in stark contrast to its rival Qantas, which is expected to post a near $1 billion annual pre-tax profit on August 20.

Analysts have warned that the risk for Virgin is that Qantas is closing the gap in costs between the two quicker than expected.

“Over the past financial year, the Group’s return on invested capital has increased from 1.4% to 6.1%. Improving our return on invested capital will continue to remain a strong focus for the Group,” Borghetti said.

“Unit revenue is increasing, unit costs are decreasing and operational performance and customer satisfaction continues to improve.”

“The Group is ahead of our target of $1 billion of cumulative cost savings by the end of financial year 2017. We are now on track to achieve in excess of $1.2 billion in cumulative cost savings by this date, excluding fuel pricing and hedging benefits.

“Over the 2015 financial year Virgin Australia Domestic has continued to drive positive yield growth, led the major carriers in on time performance and achieved record customer satisfaction with the end-to-end customer experience.”

“Based on results reported to date since financial year 2013, Virgin Australia Domestic has narrowed the revenue per available seat kilometre differential versus our major competitor and retained our strong cost advantage. The business is well positioned for future growth.

“Whilst there are challenges on the international front, we are confident with our improvement plan.”

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