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Virgin Blue Holdings Limited Interim Results For The 6 Months Ended 31 March 2006 $68.2 Million Net Profit After Tax

10/05/2006

Virgin Blue Holdings Limited today announced a net profit after tax of $68.2 million for the half-year ended 31 March, 2006.


Virgin Blue Chief Executive Brett Godfrey said that fuel had continued to be a challenge for the airline, and described the result as “an encouraging performance based on efficiency gains and strong passenger growth.”


“The first half has been a period of investment in new products under our corporate business strategy together with a 4% increase in production, which have contributed to a 6.1% improvement in revenue mitigating a fuel bill which increased over $49 million compared to the previous period,” he said.


“In addition, the last six months have included two extraordinary factors when compared to the previous year- a $10 million one-off launch cost associated with Velocity, and the key Easter period, which last year fell in March, and in 2006 fell in April,“ he concluded.


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

 6 months to 31 March 20066 months to 31 March 2005Change
Revenue$935.9 million$882.0 million+6.1%
EBITDAR$209.7million$224.9million-7.5%
EBIT$104.7 million$107.3 million-2.4%
Profit before Tax (PBT)$98.9 million$103.9 million-4.8%
Net Profit After Tax$68.2 million$74.5 million-8.5%
Basic earnings per share6.5 cents7.2 cents-9.7%
Cost per Available Seat Kilometre(CASK)
including fuel

 7.96 cents

 7.72 cents

+3.1%
excluding fuel5.93 cents6.09 cents-2.6%

 

Operating Performance

Capacity (as measured by ASKs*) increased by 4% compared to the 6 months ended 31 March 2005, whereas passengers carried grew to 7.1 million, up 9.2% on the prior period. The resulting improvement in load factor was primarily responsible for driving the $53.9 million increase in revenue.


Virgin Blue continues its excellent record of operational integrity as measured by on-time departures. For the calendar year 2005, Virgin Blue maintained its position as Australia’s number one on-time major airline, and for the past twelve months to 31 March 2006, with an average of 90% of our departures operating on time we beat our major competitor each and every single month.


*ASKs – Available Seat Kilometres

** Department of Transport and Regional Services

Revenue


Total revenue increased by 6.1% to $935.9 million, with scheduled revenue up 6.7%, as passengers carried increased 9.2% to 7.1 million and yield remained steady despite a shorter average stage length. Revenue passenger kilometres (RPKs) were 8.2 billion and ASKs were 10.4 billion, up 6.5% and 4.0% respectively from the prior year. Load factor improved to 78.4%, up 2.0 points for the same period in 2005.


Expenditure


The financial performance of the Company was impacted by a single stand-out factor - the rising cost of jet fuel. Fuel price per barrel during the six months increased by 33.7% pushing Cost per Available Seat Kilometre (CASK) to 7.96 cents, compared with only a 4.0% increase in production (ASKs) as noted above.


Total operating costs were $831.1 million, 7.3% ahead of the prior period. Despite this increase, Virgin Blue achieved a 2.6% drop in CASK (excluding fuel) from 6.09 cents to 5.93 cents, through a combination of cost and productivity initiatives.


Changes in charging regimes and deregulated pricing have seen airport charges to airlines increase dramatically. Airport charges, navigation and station operations now account for 21.8% of Virgin Blue’s operating cost base and remain both a serious concern and focus for both the company and the airline industry.


Balance Sheet and cash flow


Payment of the $259.8 million fully-franked dividend in December 2005 saw cash balances decrease from $788.1 million to $580.6 million during the period, giving Virgin Blue 127 days operating cash reserves as at 31 March 2006, down 59 days over 2005.


Capital expenditure for the Group for the 6 months to 31 March 2006 was $44.4 million.  This included deposits on nine future aircraft commitments, expenditure on existing aircraft and completion costs associated with the Brisbane hangar. The Company’s net debt to net debt plus equity ratio was 52% up from 49% at 31 March, 2005.


Outlook

In the first half of our current fiscal period, we brought to fruition a series of projects designed to broaden our appeal to the business market, including our Velocity frequent flyer programme and branded credit cards with National Australia Bank; completion of technology products Web Check-In, an Application Programme Interface facility for corporate accounts, and significant new code-share technology.


By 31 March, 2006 we had completed the majority of these new product investments, and saw signs of improvement in loads, steady revenue and business efficiencies.


In the past six months commensurate with our new corporate business traveller strategy, Virgin Blue completed a 40 percent increase in the national sales team which included the new positions of Manager Corporate Sales - Australia and New Zealand; Manager Travel Industry Sales - Australia and New Zealand; International Sales Manager; Manager Interline Relationships. In March we appointed the key management positions General Manager Velocity and General Manager National Sales, and they commenced with us in May, 2006.


With capacity in the national domestic market currently in line with historic long term demand levels, and in conjunction with initiatives the airline has introduced over the past six months, management believes Virgin Blue is now better positioned to counter current fuel price levels, which are expected to remain a challenge for all airlines in the medium term.