the meat in the sandwich

Courtesy of: Damon Kitney
From:The Australian
February 28, 201212:00AM

In this report Damon has succinctly stated the information that is most relevant to investors in VAH (IMO) with all the window dressing stripped away. The full article relates to a new chairmans lounge type facility planned to compete with Qantas, showing that Borghetti is really going after the corporate dollar and is leaving no stone unturned in converting VA into a full service airline.

But in any case Damons analysis is a great summing up of the financials. The impressive thing in relation to the result is if you consider that this 1H12 financial reporting period ends on 31 Dec last year. This means that the bedding down and consumation of the full financial impacts of 'the Borghetti factor' has only just begun to impact on the financials of this company and this augurs extremely well for the future finances of VA. The full effects of all these changes will probably mean increasing profits for the next two to three years before the full effects of all the changes are known on the bottom line. It's fairly easy (IMO) to envision a regular profit in the area of $500m p.a. if they are making 250ish now p.a.
(ie: $118 gross profit this 1H12 as reported).

This article shows the growth that I alluded to as being necessary to be showingh up in earlier posts, and boy is it showing up.

In any case the VA business burgeoned due to the effect of the Business Class restructure and Damon points out the following:

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Virgin last week posted a 118 per cent rise in interim net profit to $51.8 million, as revenue surged 18 per cent to a record half-yearly result of $2 billion.

High-yield fares, as a share of revenue at Virgin, grew from 11 to 25 per cent in the half, allowing underlying operating margins to improve from 5.7 to 6.2 per cent.

Virgin boosted its corporate and government revenues by 81 per cent, so revenue from those sources accounted for 17 per cent of group revenues in the half, up from 13 per cent a year ago.

The airline secured 35 new accounts, renewed 17 and lost none in the half.

Mr Borghetti said the airline had renewed a further 29 since the start of the second half, with revenue from travel management companies up 42 per cent.

He also said the introduction of a new Sabre reservation system would "open up a whole new dynamic, not just in Australia, but worldwide for us" when it was introduced later this year.
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Remember this is just the begining of the financial impact and it will grow for I guess the next two to three years as all the code-share agreements and domestic business class impacts mature. All costs are tightly contained with the exception of fuel prices, but this impacts the competition Qantas even more as they have a fleet of 300 aeroplanes verses VA with 100.

So it's reasonable to look for improving returns every reporting period from now until probably 2014 - 2015 when the financials stabilise as the 'game change' plans mature and the scope for growth via this mantra levels out.

I can't believe that the share price still languishes around 40 cent mark, but I guess the track record will have to show year on year improvements. I still believe the upside in this stock is massive, that is if you bought in around the 40c mark. Remember this stock floated at $2.25 and there is no reason that level should not be visited again in the next year or so.

Any thoughts...

Good luck...