VBA To Expand

By Glenn Dyer | More Articles by Glenn Dyer

On a strict comparison, Virgin Blue did better than Qantas did last year.

VBA, now owned 62% by Toll Holdings, said net profit for 2006-07 jumped 92.3% to $215.8 million.

That was on revenue for the year which jumped 16.3% to $2.17 billion.

So on a rough rule of thumb, VBA made a net margin of around 10%, while Qantas, which earned a net profit of $720 million, earned that on sales 11% higher at $15.2 billion. Qantas' costs rose 8.2%.That produced a net margin of around 5%.

And Qantas has a lot more higher paying business and government travel, as well as access to the most lucrative air routes out of Australia, across the Pacific to the US and the Kangaroo route to London with British Airways.

But VBA is slowly growing its business share.

The key though was VBA's cost control: costs rose by around 3.6% on that 16% rise in revenue.

It allowed a lot of the extra revenue to drop to the bottom line.

VBA CEO, Brett Godfrey, said the result was largely driven by increased revenue, while Virgin had fuel cost pressures, just as Qantas did during the year. Both still have fuel cost pressures to contend with.

Virgin said that it had continued to implement its hedging policy, and for the 2008 full-year had in place currency hedging covering 77% of its requirements and fuel hedging covering 49% of fuel requirements.

The airline said in yesterday's statement that the next 12 months would be a period of steady expansion for the group's three airlines as it enters the New Zealand domestic market for the first time, expands its Australian domestic network and launches a fourth airline, V Australia, to undertake long-haul international operations.

The New Zealand move could come as early as tomorrow with a further announcement expected.

"Preparations for the launch of trans-Pacific operations will escalate, and subject to completion of the remaining regulatory requirements, V Australia will inaugurate Boeing 777-300ER international flights to the USA in the second half of 2008," Virgin said.

Virgin said that during this planned development phase the company would accommodate a period of controlled increase to the cost base.

"Management views this transitional adaptation of business model as short-term investment prior to entering higher-yielding domestic and international markets," the company said.

"Virgin Blue continues to examine business models for an ultra-low cost carrier."

That will be to defend its position against the likes of Tiger and other low-cost Asian operators who want to start up here and compete with Virgin and Qantas Jetstar.

Virgin also said it was confident of continued strong revenue and yield improvement supported by further penetration of the corporate travel market, entry to the New Zealand domestic market and progress in the government travel sector.

The company declared a final dividend of two cents a share, compared to 25 cents a share in the prior corresponding period. The total dividend for the 2007 year was four cents a share.

The shares eased 2c to $2.12.


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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