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Virgin Australia swings to annual underlying profit, forward bookings strong
[BENGALURU] Virgin Australia Holdings reported a return to an annual underlying profit on Wednesday, boosted by its domestic business, and said strong momentum in forward bookings was expected to lead to a profitable current half.
Australia's No. 2 airline and larger rival Qantas Airways have been cutting domestic capacity, leading to rising airfares in a market that accounts for two-thirds of Virgin's revenue base.
Virgin posted a full-year underlying pretax profit, its most closely watched measure, of A$109.6 million (S$109.8 million) in the 12 months ended June 30, compared with a A$3.7 million loss a year ago. The figure was the highest in a decade and broadly in line with analyst expectations.
On a statutory level, however, it reported its sixth consecutive annual loss, widening to a record A$653.3 million, due to restructuring charges, writedowns on its loss-making international business and de-recognition of deferred tax assets due to its future view of fuel prices and its international business.
Virgin shares, which are tightly held among strategic investors including Etihad Airways, China's HNA Group and Singapore Airlines Ltd, were trading 4 per cent lower in mid-morning trade, while Qantas shares were 1.4 per cent higher.
Virgin CEO John Borghetti said the outlook was strong, with group revenue expected to grow by at least 7 percent in the quarter ending Sept 30 relative to the prior year.
The airline expects to post both underlying and statutory profits in the current half, despite a forecast A$85 million rise in its fuel bill due to higher oil prices.
"Our domestic business is in the best position it has ever been in," Mr Borghetti told reporters. "We are confident in the future of the business."
The airline has converted 10 of its 40 orders for Boeing Co 737 MAX narrowbodies to the largest MAX 10 version, for delivery from 2022. It will receive its first fuel-efficient MAX 8 in November 2019.
Virgin's international division and low-cost carrier Tigerair Australia were loss-making during the financial year, while earnings before interest and tax at its loyalty programme fell by 23 per cent due to changes in the local credit card market.
The carrier's joint venture with Air New Zealand Ltd on Australia-New Zealand routes ends in October, and Mr Borghetti said he was "very pleased" with forward bookings to date.
The airline lifted its cost-cutting target for the current financial year by A$50 million to A$400 million.
Mr Borghetti is scheduled to exit the airline by January 2020. A replacement has not yet been selected.