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Virgin Australia Holdings Limited reports Financial Results for Half Year Ended 31 December 2015

11 February 2016


Virgin Australia Group Financial Summary – Key improvements on H1 FY15 1,2

  • Group3 Underlying Profit Before Tax of $81.5 million – an improvement of $71.3 million
  • Strongest Group Statutory Profit After Tax since H1 FY10 of $62.5 million – an improvement of $110.3 million
  • Group revenue of $2.7 billion – an increase of 11.8 per cent
  • Group Underlying EBIT of $161.4 million – an improvement of $107.1 million
  • Group CASK declined by 1.5 per cent
  • Strong RASK growth – Virgin Australia Domestic4 up 7.1 per cent and Virgin Australia International5 up 5.1 per cent
  • Strong Yield growth – Virgin Australia Domestic up 9.1 per cent and Virgin Australia International up 2.9 per cent
  • Tigerair Australia6 RASK up 9.2 per cent and Yield up 12.0 per cent

 

Virgin Australia Group Highlights

  • Strong growth in Virgin Australia Domestic, with Underlying EBIT Margin already achieving the FY17 target of 6 – 9 per cent
  • Tigerair Australia achieved highest half year Underlying EBIT of $13.9 million since commencing operations
  • Virgin Australia International building momentum despite $19.2 million impact from Bali volcanic activity and on track to return to profitability by the end of FY17
  • Velocity revenue up 26.3 per cent and membership up 21.7 per cent to more than 5.7 million on H1 FY15
  • On track to exceed cumulative cost savings target of $1.2 billion by the end of FY17

 

Virgin Australia Holdings Limited (“Virgin Australia Group” or “Group”) (ASX: VAH) today reported an Underlying Profit Before Tax of $81.5 million for the first half of the 2016 financial year.

Virgin Australia Group Chief Executive Officer John Borghetti said: “Virgin Australia Group has continued to improve its operational and financial performance across all businesses through the first half of the 2016 financial year and is on track to achieve its targets for the end of the 2017 financial year.

“The Group delivered an Underlying Profit Before Tax of $81.5 million, an improvement of $71.3 million on the first half of the 2015 financial year. The Group also delivered the strongest Statutory Profit After Tax since the first half of the 2010 financial year of $62.5 million, an improvement of $110.3 million on the prior corresponding period. The Group’s Return on Invested Capital increased to 8.0 per cent for the 12 months ending 31 December 2015, compared with 2.9 per cent for the 12 months ending 31 December 2014.

“The Group has strengthened the fundamentals of each of the businesses through the half and is in a better position for sustainable growth.

“Virgin Australia Domestic delivered very strong Revenue per Available Seat Kilometre (RASK) growth. Yield growth was also significant, the result of attracting more corporate and government travellers during the half. For Virgin Australia International, RASK growth continued, despite a $19.2 million impact due to volcanic activity in Bali. This business remains on track to deliver a profit by the end of the 2017 financial year.

“The success of the Tigerair Australia turnaround continues to build momentum, with RASK growing by 9.2 per cent and Underlying Earnings Before Interest and Tax (Underlying EBIT) of $13.9 million, which is an improvement of $38.7 million on a standalone basis compared with the prior corresponding period.

“Velocity continues to attract strong support from members and partners alike. Revenue and Underlying EBIT Margin improved and the membership base grew to 5.7 million, with an average daily join rate of almost 2,600 members. The business continues to see the benefits of strategic investment in systems and people.

“The Group is also seeing very positive results from ongoing work in delivering an outstanding customer experience. Customers voiced their strong support for new initiatives launched during the half and the Virgin Australia Group maintained its lead in domestic on time performance over its major competitor for 15 consecutive months7.

“Delivering this type of performance isn’t possible without the hard work of our people. I would like to thank every one of our team for their ongoing commitment to delivering our strategy,” Mr Borghetti said.

Group Financial Performance

“Group revenue grew by 11.8 per cent on the first half of the 2015 financial year, while Group Underlying EBIT improved by approximately 197 per cent on that same period to $161.4 million.

“The Group also maintained its strict discipline on costs during the first half, while continuing to invest in revenue growth. As a result, Cost per Available Seat Kilometre (CASK) for the Group decreased by 1.5 per cent on the prior corresponding period. The Group is on track to exceed the target of $1.2 billion cumulative cost savings by the end of the 2017 financial year.

“During the first half, the Group delivered cost efficiencies including insourcing line maintenance on ATR aircraft and signing a long-term engine maintenance agreement with Delta Air Lines. Today, I am also pleased to announce that the Group will realise further cost savings by continuing to optimise its fleet with the sale of five Embraer 190s. The Group will also sell all six of its Embraer 170s, which are currently sub-leased to Delta Air Lines.

“The Group’s net benefit from changes in the price of oil, taking into account the adverse impact of foreign exchange rates, was $33.8 million. Based on its current hedging position and market rates, the Group expects to see a further net benefit in the second half of this financial year.

“The Group incurred $59.4 million of restructuring and transaction costs and impairment losses on assets held for sale in the half as part of the broader fleet simplification initiative.

“Total cash balance was $906.7 million with an unrestricted cash balance of $543.7 million. The Group will continue to focus on optimising the balance sheet through the second half of the 2016 financial year.

Segment Performance

Virgin Australia Domestic

“Virgin Australia Domestic delivered a very strong performance in the first half of the 2016 financial year, recording an Underlying EBIT of $130.0 million, an improvement of 86.5 per cent on the first half of the 2015 financial year. Underlying EBIT Margin also continued to improve, increasing to 7.1 per cent, up 3.0 percentage points compared with the prior corresponding period.

“Virgin Australia Domestic RASK growth was very strong, up 7.1 per cent on prior corresponding period. Revenue growth was driven by ongoing improvement in Virgin Australia Domestic’s Yield, which increased by 9.1 per cent on the prior period as a result of ongoing success in capturing a larger share of the high-yielding corporate and government traveller segments. The Group is on track to meet its target of 30 per cent of domestic revenue from corporate and government travellers by the end of the 2017 financial year.

Virgin Australia International

“In the first half, Virgin Australia International RASK grew by 5.1 per cent and Underlying EBIT improved by $8.7 million compared with the first half of the 2015 financial year, despite the $19.2 million impact from the Bali volcanic activity.

“There are a series of actions planned for the second half to continue to boost yield and revenue for the Group’s international operations, including:

  • increasing capacity on trans-Tasman routes;
  • introducing new Tigerair Australia flights to Bali; and
  • rolling out new Business Class suites and Premium Economy seats on Virgin Australia International Boeing 777 aircraft.

Tigerair Australia

“Tigerair Australia recorded its highest half year Underlying EBIT of $13.9 million since commencing operations, driven by RASK growth of 9.2 per cent and an Underlying EBIT Margin improvement of 17.8 percentage points compared with the first half of the 2015 financial year. Tigerair Australia also delivered significant improvements to its customer experience, including a revamp of booking and check-in processes, its call centre and customer communications. Tigerair Australia has also led the low cost carrier market in on time performance for the 10 months to December 2015.

“In March 2016, Tigerair Australia will commence international flights from Melbourne, Adelaide and Perth to Bali, subject to regulatory approval. Tigerair Australia has already seen a strong take-up in forward bookings for these flights8.

Velocity

“Velocity delivered revenue of $154.8 million, representing an improvement of 26.3 per cent on the first half of the 2015 financial year and its membership base grew by 21.7 per cent to 5.7 million. Underlying EBIT increased to $70.8 million, an increase of 56.6 per cent on the prior corresponding period.

“Velocity’s existing initiatives and partnerships are resonating with Velocity members and the business is continuously finding more innovative ways for members to earn Velocity Frequent Flyer points. Velocity is set to meet its earnings growth targets of at least 15 per cent growth in Underlying EBIT by the end of the 2016 and 2017 financial years and have more than 7 million members by the end of the 2017 financial year.

Virgin Australia Regional Airlines (VARA) and Cargo

“VARA, including the Charter business, performed well against the backdrop of a slowing resources sector. VARA is focused on providing a reliable, cost-effective service to customers and this has enabled it to retain and grow its strong client base.

“The new Cargo business was launched in order to seize compelling opportunities for growth over the medium to long term. Clear progress has been made, with a number of key customer accounts already signed. Today, the Group is also announcing that it has signed a heads of agreement with TNT to finalise an exclusive five year deal to take effect from July 2016.

Conclusion and Outlook

“The Group’s operational and financial performance continues to show strong momentum across all business units. The Group is improving its revenue and customer offering in all segments of the aviation market. At the same time, the Group is maintaining strict cost discipline while optimising the balance sheet.

“Based on current market conditions, all fundamental business metrics are in place for the Group to report a profit for the 2016 financial year and deliver a Return on Invested Capital in line with its Cost of Capital. However, due to current market conditions, we are not able to provide more specific guidance at this time,” Mr Borghetti said.


1Unless otherwise noted, all financial information contained in this release reflects equity accounting of Tigerair Australia from 1 July 2014 to 16 October 2014 and consolidated Tigerair Australia performance from 17 October 2014 to 31 December 2014.
2For disclaimers and definitions of non-statutory financial terms, refer to page 6.
3Group or Virgin Australia Group refers to Virgin Australia Holdings Limited and its subsidiaries and the Group’s interest in associates and joint ventures.
4Virgin Australia Domestic refers to operations for all domestic flights operated by Virgin Australia, including those operated by Virgin Australia Regional Airlines and Virgin Australia’s Cargo business. 
5Virgin Australia International refers to operations for all international flights operated by Virgin Australia.
6Tigerair Australia refers to operations for all flights operated by Tigerair Australia.
7As reflected in Virgin Australia Guest Satisfaction Tracker, July – December 2015. Data has been collected and analysed by Colmar Brunton, a leading external Australian market research company.
In accordance with definitions from the Bureau of Infrastructure, Transport & Regional Economics (BITRE), “on time performance” refers to flights that depart their respective gates within 15 minutes of the scheduled departure time shown in the carriers' schedule. Reflects BITRE data for the monthly on time performance of all services flown by Virgin Australia Group (Virgin Australia, Virgin Australia Regional Airlines and Tigerair Australia, excluding chartered services) and Qantas Group (Qantas, Qantas Link and Jetstar) between October 2014 and December 2015.
8‘low cost carrier market’ means Tigerair Australia and Jetstar. In accordance with definitions from the Bureau of Infrastructure, Transport & Regional Economics (BITRE), “on time performance” refers to flights that depart their respective gates within 15 minutes of the scheduled departure time shown in the carriers' schedule. Reflects BITRE data for the monthly on time performance for all services flown by Tigerair Australia and Jetstar between March 2015 and December 2015.