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Virgine Blue Records $113.3 Million Half-Year Net Profit

20/02/2008

Underlying profit increase 7.6%

   

Virgin Blue Holdings Limited today announced its half year results for the period to 31 December 2007. Revenue for the six months increased 8.1% from $1.12 billion to $1.21 billion with revenue per available seat kilometre (RASK) increasing 5.2% to 10.10 cents.


After adjustment for one-off development costs, underlying EBIT for the six months was $207.3 million compared to $188.4 million, an increase of 10%. Reported EBIT was $176.1 million compared to $186.6 million for the previous corresponding period.


Underlying net profit after tax increased 7.6% to $135.1 million prior to one-off expenditure after tax of $21.8 million associated with business expansion initiatives. Net profit after new initiatives and tax was $113.3 million.


“The result was achieved against a backdrop of record fuel costs, aggressive competition and a period in which we continued to invest in major initiatives to add long term future value,” Virgin Blue Chief Executive Brett Godfrey said.


During the period Virgin Blue continued its New World Carrier investment programme including Premium Economy seating, new EMBRAER fleet, expansion in the New Zealand domestic market and the implementation of V Australia.


The summary financial results for the first half of the year are as follows:

Financial Highlights
 

  6 months to 31 Dec 2007
 
6 months to 31 Dec 2006
 
Change
 
Revenue
 
$1,211.9 million
 
$1,121.3 million
 
+ 8.1%
 
EBITDAR
 
$296.3 million
 
$297.9 million
 
- 0.5%
 
EBIT
 
$176.1 million
 
$186.6 million
 
- 5.6%
 
Net Profit After Tax – underlying business
 
$135.1 million
 
$125.6 million
 
+ 7.6%
 
New Initiatives After Tax (i)
 
$21.8 million
 
$1.3 million
 
 
Net Profit After Tax and New Initiatives
 
$113.3 million
 
$124.3 million
 
- 8.8%
 
RASK(ii) scheduled revenue
 
10.10 cents
 
9.60 cents
 
+ 5.2%
 
CASK(iii) – underlying
 
8.98 cents
 
8.50 cents
 
+ 5.6%
 


(i) EMBRAER introduction, Pacific Blue NZ domestic launch, V Australia, and Other Product Development
(ii) RASK – Revenue per Available Seat Kilometre
(iii)CASK – Cost per Available Seat Kilometre

 
OPERATING PERFORMANCE


Production as measured by Available Seat Kilometres (ASKs) increased by 3.2% to 11.33 billion ASKs, compared to the 6 months ended 31 December 2006, whereas passengers carried grew 4.6% to 8.16 million.


Revenue


Total revenue increased by 8.1% to $1.21 billion, with yield increasing by 3.9 % to 12.14 cents. Revenue Passenger Kilometres (RPKs) were 9.42 billion, up 4.4% from the prior half year. Revenue load factor improved to 83.2%, up 1.0 point for the same period in 2006.


Scheduled revenue per available seat kilometre (RASK) which measures ticket price and passenger load movements (quality of the revenue stream) increased to 10.10 cents per ASK, an improvement of 5.2%.


Expenditure


During the period under review, the average price paid for jet fuel increased by 4.3% to over US$88 per barrel, increasing the total fuel bill for the period to $266.3 million. On a production adjusted basis, fuel cost $30 million more in this period than the corresponding six months excluding currency and hedging transactions. The underlying cost per available seat kilometre (CASK) increased by 5.6% driven primarily by fuel, airport charges, and payment to pilots of one-off, productivity based sign-on bonuses related to the move to a new four and a half year enterprise agreement.


Balance Sheet and cash flow


Capital expenditure for the period was $596 million, which included two 737-800s, three EMBRAER E-170s and deposits on future aircraft. Average days operating cash reserves remained constant at 136 as at 31 December 2007.


Dividend
The Company has announced an Interim Dividend of 2 cents per share, fully franked and payable to all shareholders recorded on the register at 5.00pm (AEST) on 29 February, 2008.


Outlook


The Board of Virgin Blue is presently conducting a detailed review of options to generally enhance shareholder value as it is of the view that the equity markets do not currently reflect the true underlying value of the business.  Goldman Sachs JBWere is assisting Virgin Blue in this process.


 


At this stage, the airline's Board is currently assessing a number of expressions of interest designed to increase shareholder value. It is clear that the recent Open Skies decision which is very positive for V Australia has added a new dynamic to this review.


The Board expects to complete its assessment of these submissions during the next few weeks.

 

Product and market initiatives have repositioned Virgin Blue in the domestic market place and introduction of the new EMBRAER fleet has been positively received by Australian corporate travellers. The progressive addition of the new jet type will expand Virgin Blue’s domestic network into new ports and previously uncontested routes and will allow redeployment of larger 737 capacity from marginal or loss-making routes to those markets requiring additional and profitable capacity.


The first three EMBRAER E-170 aircraft are now operating on new routes of Sydney-Port Macquarie, Sydney-Albury Wodonga and the previously uncontested Sydney-Canberra route, where the Federal Government has announced a minimum commitment of 25% of Government travel spend on airlines other than Qantas.

 

The Company’s first EMBRAER E-190 aircraft will enter service in April 2008 and Virgin Blue has today announced it has exercised four rights to purchase of EMBRAER 190 E-Jets and converted another three purchase rights to options for the same model. The orders take the total EMBRAER fleet to 24 aircraft including six EMBRAER 170s and 18 EMBRAER 190s.

 

The proposed launch of V Australia international long haul services commencing on the Trans-Pacific route is progressing on target and on budget for December 2008. The recently concluded Australia-US open skies agreement has provided certain provision for V Australia to operate 10 Trans-Pacific services weekly. This fourth airline in the Virgin Blue Holdings Airline Group will announce product, pricing and launch routes next month. Virgin Blue will also continue to expand its international presence and network reach through a series of new interline and code share agreements. Thai Airways International was announced today as Virgin Blue’s 12th interline partner.


The airline’s new Premium Economy product goes on sale today and will launch on Virgin Blue’s new Canberra-Sydney Capital Jet services commencing 15 March 2008. The first three rows of the airline’s Boeing 737 and EMBRAER aircraft will be allocated to the two abreast Premium Economy seating.


The second half financial performance will likely be impacted by the following:


The estimated capacity outlook for the market over the next six to twelve months is expected to outstrip long term annual industry growth rates. Should this eventuate, management expects the yield environment to be challenging for the remainder of this financial year.

The continuing investment in new initiatives including further expansion in the New Zealand domestic market is likely to incur a further $20 million in one off development costs in this financial year.

High fuel costs continue to impact both the airline and the overall industry.