Media Release VBA HY Financial Results - 23 Feb 2009

VBA REPORTS UNDERLYING NET PROFIT BEFORE TAX OF $60 MILLION

SYDNEY 23 February 2009: Virgin Blue Holdings Limited today reported an underlying net profit before tax of $60 million for the six months to 31 December 2008, a result in line with consensus estimates and one the company described as a creditable performance amongst airlines globally, despite an extremely tough operating environment.

The result excludes a non-recurring $60.6 million after tax investment in V Australia (including a $42 million unrealised foreign exchange loss) and an $80.8 million after tax expense relating to the mark to market of ineffective fuel and currency hedges.

“Our underlying business remained resilient despite an exceptionally challenging and historically unprecedented operating environment,” said Brett Godfrey, Virgin Blue Airlines Group Chief Executive.

“One standout is the fall in the underlying non-fuel, Cost per Available Seat Kilometre (CASK) of 1.2% to 6.55 cents - a true testament to the strength of character of our team who have risen to the challenge and driven through sustainable cost savings and efficiency gains to deliver this result.”

“The increase in the price of oil (WTI up 44% to USD102 per barrel) saw our fuel costs rise to over $400 million for the period, up $134 million against last year. The subsequent and materially significant fall in both fuel prices combined with the USD exchange rate resulted in certain of the hedges we put in place last year being deemed “ineffective”, resulting in a non cash write off of $80.8 million. It should be noted that this charge at the current fuel and USD rates will re-set certain cost inputs at these lower levels which will be reflected going forward, particularly from fiscal 2010.”

“The last few months of 2008 were also characterised by a noticeable loss of consumer confidence due to the global economic crisis and local economic downturn, putting pressure on margins.”

Mr Godfrey said that effective capacity management and cost containment programs initiated at the start of the downturn last June had enabled the core business to remain profitable, and had substantially reduced planned growth in the domestic market from a budgeted 20.2% down to 4.5% for the full 2009 financial year. Furthermore, the annualised impact of the removal of this capacity will see FY10 domestic growth of negative 2.4%.

The measures introduced included:

§Redeployment of four aircraft into new, uncontested, and international routes, leading to the launch of 13 new routes in the year to date;

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§Redeployment of a further two aircraft as maintenance and operational spares to support productivity targets and to enhance our leading on-time-performance;

§The redeployment of aircraft from loss making services to more profitable routes;

§A $50 million cost saving programme, which is ahead of schedule, and:

§An immediate headcount freeze, together with a pay freeze for senior management

Financial Highlights

The company achieved an 11.5% increase in revenue for the six months to $1.35 billion up from $1.21 billion for the equivalent past reporting period, while total revenue per available seat kilometre (RASK) declined 4.0% to 10.27 cents. The decline in RASK largely reflects the slowdown in consumer spending combined with the growth in total capacity for the Group of 16.1% during the period.

After adjustment for the one-off costs outlined above, underlying EBIT for the six months was $87 million compared to $207 million, a decrease of 58%. The summary financial results for the first half of the year are as follows:

(i) V Australia
(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 16.1% to 13.16 billion compared with the six months ended 31 December 2007, while passengers carried grew 13.2% to 9.24 million. Total ASK growth in the domestic market for the six months was 9.1%, with no growth forecast for the second half of the financial year.

Revenue

Total revenue increased by 11.5% to $1.35 billion. Revenue Passenger Kilometres (RPKs), an indicator of demand, increased by 12% to 10.55 billion, compared with 9.42 billion for the previous equivalent reporting period. However, revenue load factor decreased to 80.2%, down 3.0 points for the same period in 2007.

Total revenue per available seat kilometre (RASK) which measures ticket price and passenger load movements decreased to 10.27 cents per ASK, a reduction of 4.0%.

Expenditure

During the period under review, the average price paid for jet fuel increased by 44.2% to over US$127 per barrel, increasing the total fuel bill for the period to $400.6 million. The underlying cost per available seat kilometre (CASK) decreased by 1.2% driven primarily by our cost saving program, improving efficiencies of our Embraer aircraft and enhanced productivity across the network.

Balance Sheet and cash flow

Operating cash flow for the six months was a net inflow of $124 million. Capital expenditure for the period was $412 million - which included one 737-800; two Embraer E-170s; three Embraer E-190s and deposits on future aircraft, and net proceeds from funding were $200 million. Total cash balances at 31 December were $526 million, down $78 million for the six months.

Dividend

The Company believes it prudent not to issue an Interim Dividend at this time.

OUTLOOK

The Board of Virgin Blue believes its current outlook for FY09 remains challenging however no change in guidance, last given at the company’s November 2008 AGM, is required at this time. The softening demand and other factors contribute to this being the most volatile operating environment in the history of commercial aviation, Australia included, with domestic fares at 17 year lows and yield impacted accordingly.

The company has escalated its program to insulate the business against the possibility of a further deterioration in domestic demand through a range of measures, including:

§The removal of a further 8% annualised capacity or up to 5 aircraft, from Australian domestic flying by 1 May, 2009. These aircraft will be managed as operational spares and not redeployed until the second half of 2010;

§Reduction of staff levels by up to 400 full time equivalent positions. To minimise the need for involuntary redundancies, a range of measures are being explored including job sharing, leave without pay, transfers to other business units or airline’s within the Group, part time and reduced hours;

§General Managers and the Executive Management Team have committed to a reduction of 20-30% of their annual cash compensation;

§The Board has committed to a 10% reduction in Directors’ fees; and

§A further $40 million in cost savings have been identified and targeted to be achieved in the second half of FY09.

Capacity Management

The strategic focus of the group to address this operating environment will continue to be on its capacity and fleet management program, which to date has seen the deferral of several Embraer aircraft into FY10, an ongoing network performance review and redeployment of existing capacity to new or uncontested domestic routes or onto international markets.

For FY09, domestic capacity growth will be decreased from 20.2% to just 4.5%, with a growth in FY10 being
negative 2.4%.

Capital Management

The focus on capital management initiatives will continue with the potential to realise assets in excess of $150 million over the short term. The determination of the extent of asset realisations will continue in line with the airline’s on-going review of prevailing and anticipated market conditions.

Product and Services

The veracity of product and market initiatives has been proven with increases in our domestic market share, up 0.6 pts to 31.7% and also a 15% increase in our share of the corporate and government markets, although this is still not our fair share of this market sector and we hope to see this continue to rise to an equitable level. Contributing factors to the market share increase have been the introduction of new Embraer aircraft type, further enhancements to The Lounge product, and schedule and route adjustments.

With the December Government on-time performance (OTP) statistics being released last week, Virgin Blue has been confirmed again as having the best OTP among the three major domestic carriers for 2008.

For the 12 months to December, Virgin Blue was at 80.3%, with Qantas at 79.1% and Jetstar 78.4%, despite the fact that Virgin Blue has more of its domestic fleet operations than any other airline exposed to Sydney’s current chronic ATC shortages and congestion.