thursdays 1h announcement

Thursdays announcement should usher in a new era for Virgin Australia and lay the foundation of the future profitability of the company. Remember that in essense VAH is a new animal and any comparision to the old VB and it's financials are virtually useless due to the changes brought about in the past 18 months.

So now there are a few things (IMO) to look for in the announcement this week that may lead to a longer term view in terms of the investment potential.

Firstly, this better be a strong result in bottom line dollar terms. There have been massive changes, and although some of those changes are in their infancy or toddler stages, the results need to show through, because if they don't and the result is iffy or weak then big problems may arise if fuel costs expand again given the uncertainty around Iran and the fuel price spike impacts that may occur in the next 6 to 12 months.

Secondly, Singers, Delta, Air NZ, Etihad and Hawaiian should also be feeding some good pax numbers through to the domestic market via the code share impact. This should show up in the numbers quite clearly as V Australia was reported to increase domestic sales by around $200m pa. Therefore the combined force of those companies had better be substantial even in view of the short lead in times. (In this regard I note that VAH has has had to lease some aeroplanes from Alliance to run some services using VAH uniforms and staff etc, to meet immediate capacity requirements and I hear that some of these Fokker 100's may be painted in VAH colours, and this may involve up to 8 aircraft. If this is anywhere near true, then the result will be strong in dollar terms, because this sort of growth is unplanned for and required an urgent outsourcing solution).

The domestic leisure market (the cornerstone of VAH for 10 years) is well on the financial mend, not just in VAH but across all Oz carriers in terms of better yields.

The new business product that is relatively new in terms of time in the job is already biting strongly in the market place, both in domestic terms and in terms of codeshare carriers feeding their well heeled into and then around Oz via VAH. This should have a major impact in its own right.

The new regional numbers should be modest but cash flow positive and the Velocity Program numbers are one to look out for.

Crucially, look for the two metrics of Business Class passengers impact as both a percentage of VAH revenue and as a percentage of the domestic Business Class business nationally, because firstly the percent of VAH revenue needs to grow and show a decent improvement against the last known number of 13% - legacy carriers make about half their revenues from the upper classes (so to speak). Secondly the national domestic business class business is worth about $3.4b pa. Even 20% of this is therefore around $700m p.a. - so this is big banana potential to VAH and the roll out of Business Class, whilst new, is already mature enough to give some future indicators of likely impact on revenues for the new few years (IMO).

All sectors of the business are now supposed and ought be profitable, so a strong result this 1H will augur well for the next two to three years, where the growth impacts of the 'Borghetti Factor' are most likely to bear fruit.

I'd also like to see a dividend if only a small one to illustrate to the market that VAH is confident of the future earning abilities of the new VA and not least because I want some ROI!!!

Good Luck and now we get to see if Mr. John Borghetti is earning his pay, I think he will be...