Virgin expects profit slump as costs mount
Virgin Australia expects to post a loss of between $95 million and $110 million with the switch to a new reservation system, acquisition costs of Skywest and Tiger and carbon tax all hitting the bottom line.
The difficult trading environment and fierce competition has also impacted the airline’s profitability.
The profit warning came as Virgin announced a rise in fares and fuel levies to combat rising fuel costs and the fall of the dollar.
Chief executive John Borghetti admitted the result guidance was “disappointing” but insisted the business has the “right platform” for future growth.
The anticipated loss compares to a $23m profit last year.
In an announcement this morning, Virgin said restructuring costs for the year ending June would be around $100m, which includes $36m announced in the first half.
The costs include the switch to the Sabre booking and check-in system, takeover of Skywest and acquisition of 60% of Tigerair, Virgin said.
Meanwhile, pre-tax costs of the carbon tax are expected to reach between $45m and $50m which the carrier was unable to recoup “due to weak economic conditions and the competitive environment”.
The full year losses of up to $110m include a Skywest operating pre-tax loss of between $5m and $10m.
“Although today’s update is disappointing and notwithstanding a challenging environment, we have made significant progress on the execution of our Game Change Program,” Borghetti said. “We now have the right platform in the Australian market to generate sustainable earnings benefit.”
The carrier added that June showed "positive performance trends" with yields ahead of the same month last year.
The trend has continued into July, Virgin said, with loads also rising. Forward bookings at June 30 are 6% higher than the same time last year.
Domestic capacity in the first half of 2014 is expected to rise 3% to 4%.
Email the Travel Weekly team at traveldesk@travelweekly.com.au
airlines aviation john borghetti virgin australiaLatest News
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