Virgin Australia Sees Blue Skies Despite Sixth Consecutive Loss

Believe it or more but after reporting its sixth consecutive full-year after-tax loss, Virgin Australia reckons it will be profitable this financial year.

The airline yesterday reported a bottom line loss of $653 million thanks to more write downs in its intangible assets and its international businesses, compared to a $185 million loss for 2016-17.

On an underlying level, which strips out the impact of impairments and the costs of Virgin’s three-year business restructuring and turnaround plan, the airline reported a $109 million profit – up from a $3.7 million loss in 2017.

The loss came despite revenues rising 7.4% to a record $5.4 billion and a doubling in its net cash position to $540 million.

The company said the loss was driven by a $573 million hit from accounting adjustments, including taking out $452 million in deferred tax assets from the books and a $121 million write-down in the value of its international business.

But the company reckons it will be profitable at the underlying profit before tax and statutory levels in the first half of next year despite an expected $85 million fuel price rise.

Based on advanced bookings and the current market condition, revenue in the first quarter of 2019 is expected to be up around 7%

The total fuel cost for the 2019 financial year is expected to be $1.2 billion, up $213 million on 2018, partly driven by an increase in consumption of 5% to 6%, largely attributable to increased international flying.

(By way of comparison, Qantas reported earnings from its domestic business, including Jetstar of $1 billion). Virgin chief executive John Borghetti said it was the group’s strongest underlying result in a decade, and was driven by record-high earnings in its core domestic business.

“Today’s financial results show that the business is in a good position to achieve sustainable profitability going forward," Mr Borghetti said yesterday.

Mr Borghetti said the accounting adjustments were non-cash and did not affect the fundamentals of Virgin’s underlying business.

“We are confident in the performance of the Group’s underlying business and that long-term benefits from our growth plans will be delivered,” he said.

Virgin’s fleet simplification and other business restructuring costs ran at $148.5 million, meaning the company would have ran at a net loss even without the accounting impairments.

Virgin shares dipped 4% to 24 cents. The public float is not very big given that a number of global airlines hold shares in the company.

Virgin’s shares fell 4% to 24 cents in early trade and stayed there.

Glenn Dyer

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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