-- Virgin Australia first-half net profit down 56% to A$23
million
-- Underlying profit of A$61 million slightly below
expectations
-- Forecasts rise in full-year underlying profit
SYDNEY--Virgin Australia Holdings Ltd. (VAH.AU) Tuesday booked a
56% fall in first-half profit as intensifying competition in
Australia's domestic travel market drove down ticket prices and
stopped it from passing on the carbon tax to customers.
Australia's second-biggest carrier after Qantas Airways Ltd.
(QAN.AU) has been expanding flying capacity and putting
business-class seats on its jets for the first time to wrest market
share from its larger rival. The turf war has led to heavy
discounting on ticket prices and shrunk both airlines' margins.
Net profit for the six months to Dec. 31 fell to 23.0 million
Australian dollars (US$23.6 million) from A$51.8 million a year
earlier, when the group also benefited from Qantas temporarily
grounding its fleet due to industrial action.
Yields on ticket prices contracted by 1% due to the aggressive
pricing environment.
"The competitive capacity position meant we couldn't put on the
carbon tax component," Chief Financial Officer Sanker Narayan told
reporters.
Airlines are among the worst emitters of carbon into the
atmosphere from fuel burnt during flights. Virgin Australia said
the levy--introduced July 1--cost its business A$24.4 million
during the half.
Australian airlines aren't immune to the fragile consumer
confidence plaguing their international peers, but the relative
strength of its mining-led economy is buoying demand for business
travel. Virgin Australia is targeting capacity expansions on routes
connecting the financial hubs of Sydney and Melbourne to the mining
capital of Perth.
Virgin Australia--a quarter-owned by Richard Branson's Virgin
Group--is also beefing up its presence in the fly-in, fly-out
market that ferries resources workers to smaller regional
centres.
In a sign that its strategy is attracting passengers, the
company said more than a fifth of its revenue during the half was
generated by higher-yielding corporate and government travelers, up
from below 10% several years ago.
Apart from now offering business-class tickets, the airline has
also been trying to entice premium travelers by expanding its
global reach through international alliances with Singapore
Airlines, Etihad, Delta Air Lines and Air New Zealand. It said the
partnerships drove a 7.9% jump in international revenue during the
half.
Changes made to the company's business-class offering were part
of a three-year period of investment, which ended last financial
year. The company has subsequently flagged a three-year
cost-cutting drive to try and reach average savings of A$200
million a year by the end of the 2015 financial year. Chief
Executive John Borghetti said that six months in, the company is on
track to hit the target.
Sydney-based Virgin Australia's underlying pre-tax profit, a
measure more closely watched by analysts, fell to A$61.0 million
from A$96.1 million, slightly below the A$65 million average of
five analysts' forecasts compiled by Dow Jones Newswires. The
difference between underlying profit and bottom line profit can be
attributed to the cost of introducing a new ticket booking
system.
Virgin said it expects underlying pre-tax profit in the full
year to exceed the A$82.5 million posted a year earlier, and
predicted its flying capacity within Australia in the six months to
June 30 would be 5% and 7% higher on year.
Virgin's reach within Australia will expand should it complete
deals to take control of Tiger Airways's Australian unit and
regional carrier Skywest Airlines Ltd.(SXR.AU). Australia's
competition watchdog has yet to rule on the Tiger deal, and has
expressed some concern it could create a duopoly in the skies.
-Write to Ross Kelly at ross.kelly@wsj.com
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