Domestic battle takes toll on Virgin

Domestic battle takes toll on Virgin
By admin

Virgin Australia today joined Qantas in suffering from Australia's fierce domestic capacity battle as it reported a slump in first half profits.

Revenue growth of 5% was achieved despite the biggest hike in capacity for nine years, chief executive John Borghetti said.

But it dented the bottom line as the market share battle, and subsequent decline in airfares and yield, saw net profit after tax fall from $52 million to $23m in the six months to December 31. Underlying pre-tax profit hit $61m.

Shares fell 4.6% to $0.415 this afternoon.

The airline also blamed the result on a $24.4m carbon tax cost and the absence of any Qantas industrial action which provided a $6m earnings boost in the previous corresponding period.

Virgin also signalled that the domestic battle is set to continue with the carrier set to grow capacity by 5% to 7% in the second half of the financial year.

From May 15 it will operate A330 aircraft on two out of three weekday services between Brisbane and Perth, while new services between Brisbane and Moranbah and Brisbane and Bundaberg will be launched.

Despite the profit decline, Borghetti described the result as "solid". He highlighted the 56% growth of interline and codeshare revenue, the successful introduction of the Sabre system and continued progress of the Game Change Strategy as reasons for optimism and further growth.

"Considering the aggressive competition and challenging economic environment, Virgin Australia has delivered a solid result…illustrating the success and resilience of our new operating model," he said.

"The Game Change Strategy has driven improved revenue performance, with revenue growth of 5.4% on the first half of financial year 2012, building on the strong growth of 18% that we achieved on the first half of 2011.

"This revenue growth was also achieved in the context of the highest domestic market capacity increase since the launch of Jetstar in 2004."

Virgin gave no financial guidance for the full year due to the economic uncertainty and competitive environment.

But Borghetti said Virgin outperformed the market with group yield down 1%, a fall which "reflected the aggressive capacity and pricing environment".

He declared that its global alliance strategy goes from "strength to strength" with the partnership also having a positive impact on the Velocity Frequent Flyer program. Membership, now at 3.5 million, increased 15.5% in the first half.

The carrier said it has also grown its corporate and government revenue and "maintained the new norm in which more than 20% of our domestic revenues comes from this higher yielding market".

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