Virgin Australia to cut capacity after H1 underlying profit plunges 78%

[SYDNEY] Virgin Australia Holdings said on Wednesday it would cut capacity in the domestic and international market as demand falls because of the outbreak of a new coronavirus after it posted a 78 per cent fall in half-year underlying earnings.

The airline's underlying pre-tax profit, its most closely watched measure, was A$24.5 million (S$22.6 million) in the six months ended Dec 31 adjusted for accounting changes, down from A$111.9 million a year earlier, a figure that had been its highest in a decade.

On a bottom line basis, Virgin Australia posted a A$88.6 million first-half loss and said the coronavirus situation was likely to result in a A$50 million to A$75 million hit to earnings in the second half.

Larger rival Qantas Airways last week posted flat underlying pre-tax earnings and announced plans to ground the equivalent of 18 planes and freeze recruitment due to the virus.

Virgin Australia said it would cut capacity by 3 per cent in the second half of the financial year and 5 per cent in the next financial year, in part by removing seven Airbus SE A320 jets from the fleet of its struggling budget arm Tigerair Australia to accelerate its transition to an all Boeing 737 fleet.

"The coronavirus outbreak is having a significant effect on the travel industry and we are also seeing weaker domestic and international demand," Virgin Australia CEO Paul Scurrah said in a statement. "We are responding to this with immediate steps to minimise impact to the group's financial position."

Earlier this month, the airline announced it would stop flying from Sydney to Hong Kong over concerns about civil unrest and the coronavirus, having earlier cut its Melbourne-Hong Kong route.

Virgin Australia last year said it would cut 750 jobs and merged business divisions after reporting an annual underlying loss. On Wednesday, it said it remained on track to complete the job cuts by June 30.

Virgin Australia closed at a record low on Tuesday. The airline's major shareholders include Etihad Airways, Singapore Airlines, HNA Group, Nanshan Group and Richard Branson's Virgin Group.

REUTERS