.Virgin wings Qantas with a better-than-expected $62m profit...

.Virgin wings Qantas with a better-than-expected $62m profit Steve Creedy, Aviation writer From: The Australian February 25, 2010 12:00AM Increase Text SizeDecrease Text SizePrintEmail Share
Add to DiggAdd to del.icio.usAdd to FacebookAdd to KwoffAdd to MyspaceAdd to NewsvineWhat are these?VIRGIN Blue believes a better-than-expected $62.5 million interim net profit marks a turning point for the group, and has underscored its optimism with an in-principle deal with Boeing to acquire up to 50 aircraft.
The first-half result, compared to a $101.4m net loss in the previous corresponding period, was almost three times one consensus estimate and allowed chief executive Brett Godfrey to beat Qantas's recently announced $58m net result in his final results presentation.

"To be honest, I think this is a turning-point set of results," Mr Godfrey said. "I know it's easy to say that because I'm departing, but I'm quite comfortable that . . . the business is quite solidly positioned."

Virgin's group pre-tax profit of $98.9m was up from a loss of $143.8m in the year-ago half and translated to a 34 per cent rise in underlying pre-tax profit to $75.6m. Despite this, it stuck by its recently updated outlook for the full financial year of an underlying pre-tax profit of between $80m and $110m and did not pay a dividend.

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Mr Godfrey said Virgin's new world carrier strategy was working and it planned to grow its domestic footprint.

He was also optimistic that it would benefit from the federal government's move to put travel out to tender, and would increase its market share in the sector from the current 15-18 per cent to as much 30 per cent. But, like its three-times-larger rival Qantas, Mr Godfrey dampened analyst expectations that the second half would be stronger than the first.

He said the first fiscal half typically comprised four strong and two relatively weak months, while the second half typically had two or three stronger months. "We've always had a disequilibrium between the first half and the second half, so the $75.6m underlying result we have here will not be replicated in the second half." Mr Godfrey said Virgin was expecting yield to be off about 3 per cent in the second half. While this would still be 5 per cent stronger than the same period last year, it would mean between $50m and $55m less revenue.

"If you take that through to the bottom line, which you will, that puts us somewhere slap-bang in the middle of the guidance that we've given," he said.

Mr Godfrey said the results were underpinned by solid costs containment, effective capacity management and a better yield result than its competitors.

First-half revenue grew 12.2 per cent to $1.52bn, while total operating expenses rose 4.5 per cent to $1.41bn. However, unit costs excluding fuel fell 4.5 per cent to 6.25c per available seat kilometre. Net cash inflow increased sharply to $369.9m to give the group cash reserves of $841.9m at December 31.

Short-haul operations proved the star performer with a 126 per cent rise in pre-tax profit to $108m, and a 2.7 per cent rise in domestic yield.

Virgin is moving to secure short-term additional domestic capacity and Mr Godfrey said the Boeing deal would allow it to grow vigorously, defend its core market and allow it tremendous flexibility. The airline would also in May roll out a new reservation system which would have a material effect on how it could deal with premium customers and disruptions.

V Australia continued to be a drag on the results, recording a pre-tax loss of $39m, but Mr Godfrey said he remained confident it would become profitable 18 months after launch.

Virgin shares closed down 1c at 61c.

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