Virgin Australia Holdings reports strongest ever first half result in H1FY2018

Virgin Australia Holdings Ltd released its First Half Financial Year results today for the six months ending 31-Dec-2017. The presentation included information on its fleet, loyalty programme and outlook for 2018. The AUD102.5 million (USD80 million) underlying profit before tax result was up 142.3%, driven by factors including unit revenue and passenger growth, capacity and network optimisation and further progress in implementing its Better Business programme.

Virgin Australia CEO and MD John Borghetti said:

“The Group has significantly improved its underlying financial performance compared to the prior corresponding period, recording one of our strongest ever first half results. This demonstrates the success of our long-term strategy to reposition the business and strengthen its financial foundation; however, there is more work ahead to ensure we continue to deliver”.

On Virgin Australia Group’s fleet, Mr Borghetti said: “Importantly, we have continued to invest in maintaining a young and efficient fleet while reducing our Financial Leverage. This has been achieved through delivering a strong operating cash flow and maintaining a disciplined approach to non-aircraft capital expenditure”.

On rising fuel costs, Mr Borghetti said: “The Group was highly hedged against adverse movements in fuel prices and therefore the impact of rising fuel prices during this period was limited. The increase in fuel costs was also partially offset by the impact of favourable foreign exchange movements with the stronger Australian Dollar. For the remainder of the 2018 financial year, the Virgin Australia Group has hedged 95% of its foreign currency exposures and 95% of its expected fuel consumption.”

Financial result highlights:

  • Revenue: AUD2791 million (USD2174 million), +6.0% year-on-year;
    • Virgin Australia Domestic: AUD1876 million (USD1462 million), +5.3%;
    • Virgin Australia International: AUD578 million (USD450.3 million), +14.2%;
    • Velocity: AUD191.3 million (USD149 million), +8.4%;
    • Tigerair Australia: AUD302.3 million (USD235.5 million), +2.8%;
  • Operating costs: AUD2709 million (USD2110 million), +4.3%;
    • Labour: AUD629.3 million (USD490.3 million), +5.7%;
    • Airport charges, navigation and station operations: AUD544.7 million (USD424.4 million), +1.9%;
    • Fuel: AUD477.1 million (USD371.7 million), +6.3%;
  • Segment EBIT: AUD180.1 million (USD140.3 million), +41.0%;
    • Virgin Australia Domestic: AUD153.1 million (USD119.3 million), +91.4%;
    • Virgin Australia International: AUD1.4 million (USD1.1 million), +75.0%;
    • Velocity: AUD56.2 million (USD43.8 million), -14.8%;
    • Tigerair Australia: (AUD6.7 million) (USD5.2 million), compared to a profit of AUD6.2 million in p-c-p;
  • Profit before net finance costs and tax: AUD86.0 million (USD67.0 million), +123%;
  • Net profit: AUD4.4 million (USD3.4 million), compared to a loss of AUD21.5 million in p-c-p;
  • Passengers: 12.8 million, +2.3%;
    • Virgin Australia Domestic: 9.0 million, +1.5%;
    • Virgin Australia International: 1.3 million, +3.7%;
    • Tigerair Australia: 2.4 million, +4.6%;
  • Passenger load factor: 81.9%, +0.6ppt;
    • Virgin Australia Domestic: 81.0%, +3.1ppt;
    • Virgin Australia International: 80.4%, -3.7ppts;
    • Tigerair Australia: 89.3%, +0.4ppt;
  • Total assets: AUD6354 million (USD4950 million);
  • Cash and cash equivalents: AUD1216 million (USD947.6 million);
  • Total liabilities: AUD4695 million (USD3658 million).

*Based on the average conversion rate at AUD1 = USD0.779069

Key announcements and news highlights:

Virgin Australia Group reports strengthening balance sheet, cutting USD284m in net debt

Virgin Australia Group CEO and MD John Borghetti reported the group continued to improved its balance sheet during H1FY2018, reducing total debt by AUD363.8 million (USD283.7 million) and improving financial leverage by 4.4% year-on-year to 4.3x. The group recorded its strongest financial leverage result for 10 years said Mr Borghetti, while cash generated from operating activities improved by 88.6%. Mr Borghetti said the result “demonstrates the success of our long-term strategy to reposition the business and strengthen its financial foundation; however there is more work ahead to ensure we continue to deliver”.

Virgin Australia reports strong domestic gains, mixed results for International, Velocity & Tigerair

Highlights for individual business segments include:

  • Virgin Australia Domestic:
    • Segment EBIT: +91.4% year-on-year;
    • Segment EBIT margin: +3.7 ppts;
    • Revenue per ASK: +7.4%;
    • Yield: +3.2%;
  • Virgin Australia International:
    • Segment EBIT: +AUD0.6 million (USD0.5 million);
    • Revenue per ASK: -1.2%;
    • Yield: +3.4%;
    • Operating result was driven by capacity and network optimisation, benefits derived from the fleet simplification program and improved corporate travel demand, including a pick-up in the resources market. Segment felt the impact of the Bali volcano and investment in the launch of Hong Kong flights.
  • Tigerair Australia:
    • Passengers: +4.6%;
    • ASKs: -7.5%;
    • Revenue per ASK: +11.2%;
    • Operating performance was affected by the impact of Tigerair Australia’s unscheduled exit from Bali in 2017, which resulted in surplus aircraft that were temporarily deployed on the domestic network. These aircraft left the fleet earlier in Feb-2018. Tigerair is fast tracking its fleet transition from A320 to Boeing 737 aircraft;
  • Velocity:
    • Segment EBIT: +AUD56.2 million (USD43.8 million);
    • Revenue: +8.4%;
    • Membership: +600,000
    • Velocity faced challenges in the H1FY2018 due to the impact of the Reserve Bank of Australia (RBA) changes to the credit card interchange regime and due to Velocity’s investment in new business development initiatives that will be launching in FY2019. Velocity reported a representing a decline of AUD9.8 million.

Virgin Australia forecasts improved year-on-year performance in H2FY2018

Virgin Australia Group stated that based on its recent positive performance trajectory, current market conditions and fuel headwinds net of foreign exchange for H2FY2018, the board expects underlying performance for H2FY2018 to improve compared to the Group’s underlying performance for the H2FY2017. Virgin Australia Group CEO and MD John Borghetti said the group wants to “build on the progress we’ve made in the domestic market, by continuing to consolidate Virgin Australia’s position and expediting Tigerair’s fleet transition and network optimisation. Internationally, the airline will “continue to enhance our customer offering through our alliance partnerships and assess opportunities for expansion into Greater China” said Mr Borghetti.

Virgin Australia to repurchase ‘unmarketable’ parcels of shares, confirms no intent to privatise

Virgin Australia Group board confirmed there is no current intention to privatise the group and announced a share buy-back facility to provide liquidity to “unmarketable” parcel holders. The group will offer an opt-out facility to buy-back unmarketable parcels of shares from unmarketable parcel holders at a price of AUD0.30 per share. An unmarketable parcel of shares is defined as a shareholding valued at less than AUD500 (USD390), comprising 1666 shares or less as of 06-Mar-2018. Virgin Australia Group chairman Elizabeth Bryan said the board “remains conscious that the company has a small free float and a register made up of more than 38,000 shareholders, of whom approximately 21,000 hold unmarketable parcels of shares worth less than AUD500”.

Virgin Australia announces changes to board

Virgin Australia announced Rob Thomas will step down from his role as an independent non-executive director of the Virgin Australia Group effective, 28-Feb-2018. The Virgin Australia Group also announced the appointment of Robin Kamark as an alternative director for Harsh Mohan, effective today. Mr Mohan is the nominated representative of Etihad Aviation Group on the board of the Virgin Australia Group.