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Virgin Blue Holdings Limited Full Year Results


Exceeds Prospectus Forecast

Cost Base Lowest in Country and Declining

Targeting Further Profitable Growth

Virgin Blue Holdings Limited today announced a 47% increase in net profit after tax to $159 million for the full year ended 31 March 2004, exceeding prospectus forecasts of $150 million.

The summary financial results for the year were:


up49% to $1,362 million
EBITDARup43% to $409 million
EBITDAR margin 30.1%
EBITup49% to $218 million
EBIT margin 16.0%
Profit before Tax (PBT)up45% to $226 million
PBT margin 16.6%
Net Profit after Taxup47% to $159 million
Basic earnings per share  17.3 cents

As stated in the prospectus, no dividend has been declared for the year ended 31 March 2004.


Virgin Blue continues to demonstrate strong growth and profitability despite increasing domestic competition.

Virgin Blue’s EBITDAR (earnings before interest, tax, depreciation, amortisation and aircraft rentals) and PBT margins at 30.1% and 16.6% respectively are among the highest of airlines in the world. Virgin Blue’s cost per Available Seat Kilometre (ASK) for the full year to March 2004 was 8.16 cents, with a cost per ASK for the 6 months to March 2004 of 7.73 cents.

“Our cost base is the lowest in the country and declining,” said Virgin Blue CEO Brett Godfrey. “We are committed to keeping our cost base low and are continually working on ways to reduce costs further. Low costs mean we can continue to offer not just the lowest fares but many more of them across the network.”

Capacity (as measured by ASKs) increased by 55% during the year, as 15 new aircraft were added to the fleet. Frequencies were increased on existing routes and new business and leisure services were introduced both in Australia and internationally. Virgin Blue’s 44 aircraft now fly 43 routes to 21 destinations around the country and we are the only low cost carrier in the world with national coverage. As at March 2004, Virgin Blue had over 33% of the Australian domestic market and its market share continues to exceed capacity share.

These increased frequencies have allowed Virgin Blue to continue to make inroads into the business market. The company now has more than 1,000 corporate accounts, including an increasing share of ASX Top 50 companies. In support, Virgin Blue has introduced a whole range of value-added user pays services including Blue Room lounges, Blue Zone seating, in-flight catering and valet parking.

Virgin Blue has stepped up to provide additional services to those cities which have been downgraded by Qantas’ decision to replace the full-service Qantas product with the no-frills Jetstar product. In particular, services to Rockhampton, Hobart, Townsville and the Gold Coast have all been increased to better service the local business communities. Virgin Blue believes significant opportunities exist to increase market share in these important regional markets.



Total revenue increased by 49% to $1,362 million. Scheduled revenue was up 47%, while other revenue (including freight) was up 117%.

Virgin Blue carried over 10 million passengers during the year, up 53% from the previous year. Revenue Passenger Kilometres (RPKs) were 11,584 million and ASKs were 14,024 million, up 61% and 55% respectively from the 2003 financial year. Load factor remained strong, increasing 3.4 pts to 82.6%.

Yields fell 7.5% during the year driven by the introduction of 10 new aircraft during the 3 months from August 2003 (representing a 30% capacity increase), as well as increasing capacity on longer haul sectors.


Total costs were $1,144 million, up 49% from the previous year. Cost per ASK fell 0.30 cents to 8.16 cents for the full year, largely driven by scale and productivity. Management’s focus remains on reducing costs as evidenced by the further reduction in the company’s cost per ASK to 7.73 cents for the 6 months to March 2004.

Main expense increases were in fuel, airport related and staff costs and were essentially driven by increased production.

Fuel prices increased by more than 28% during the year, although the Company was substantially hedged for the financial year at below US$30 per barrel. In line with other carriers around the world, Virgin Blue has announced a fuel surcharge to cover the increased cost to the business from the rising fuel prices. This surcharge will come into effect from 12.01am on Tuesday 18 May 2004.

Airport related costs included the higher terminal charges relating to the move into Terminal 2 at Sydney airport, as well as the unilateral decision by Sydney Airport to change the method of charging landing fees from a Maximum Takeoff Weight (MTOW) basis to a per passenger basis. Virgin Blue is currently appealing this decision. Airport charges are largely an uncontrollable cost imposed by airport operators and therefore remain a real concern for both the company and the industry.

Staff related cost increases were in line with production and agreed EBA increases but were offset by continuing productivity efficiencies.

Some 35% of the company’s costs are in US dollars. As the company hedged the majority of its 2004 financial year exposure, it did not fully benefit from the appreciation in the exchange rate during the year. In recent months, Virgin Blue eliminated downside risk arising from currency depreciation for the 2005 financial year.

Balance sheet and cash flow

Cash balances increased from $127 million to $469 million during the year, giving Virgin Blue 150 days operating cash reserves as at 31 March 2004. This demonstrates continuing strong cash flow growth from operations, together with proceeds from the IPO.

Key capital expenditure items included the acquisition of eight aircraft from Boeing and the flight simulator facility which recently opened in Brisbane. Finance for the aircraft has been fixed at current low interest rates for the term of the facility.

The company’s net debt to net debt plus equity ratio, adjusted for off balance sheet aircraft leases, was 66%, down from 83% as at 31 March 2003.


“We are continuing to enhance our product for both the business market and leisure passengers by offering more frequencies, more services and more destinations at lower prices than our competitors,” said Brett Godfrey.

The domestic environment continues to remain intensely competitive and the launch of Jetstar is expected to provide ongoing pressure on yields. Virgin Blue, through its ongoing commitment to manage and lower its cost base, will offer the lowest fares in the market and will continue to remain price competitive with all competitors throughout the network.

“We will continue to grow our business aggressively,” said Brett Godfrey, “however, we will focus on profitable growth, not simply greater domestic market share.” The company will add a further net 5 aircraft to the fleet during the year. As a result, capacity (as measured in ASKs) will still increase by 44%, providing the airline with significant opportunities to increase its profitability through additional frequencies and the introduction of new domestic and international services.

Virgin Blue intends to expand international services under the Pacific Blue brand with 4 aircraft expected to operate international routes by March 2005. The airline has already announced intentions to commence flying to Fiji and Vanuatu in September and expects to announce other destinations shortly.

“Our focus has been and always will be on making profitable returns - our margins prove that. Our cost base is the lowest in Australia and we will continue to work to reduce it even further. Qantas has claimed Jetstar will have a cost base of 8.25 cents per ASK when it launches. Our cost per ASK for the last financial year was 8.16 cents, and 7.73 cents for the most recent half year to March 2004. We are focused on cost control and expect our costs to remain at the sub 8 cent level for the 2005 financial year.”

Virgin Blue offers a better product and greater value for money than Qantas and is a superior product to Qantas’ no frills Jetstar offering, which will compete against Virgin Blue on only around 20% of our business. “Even if they match our prices, we offer considerably more legroom, assigned seating, a fully connecting national network, high frequencies (including on key business routes) and numerous other service enhancements,” said Brett Godfrey.

“We continue to increase market share and penetrate the higher-yielding business customers. With three Blue Room lounges now up and running in Brisbane, Sydney and Melbourne, we expect to see greater use of our product by business guests. Our on-time performance continues to be exceptional and we believe the increased frequencies on key business routes are continuing to attract corporate customers seeking to minimise their travel costs, whilst maintaining a higher quality standard of travel.”

Virgin Blue believes that while the domestic Australian market continues to demonstrate strong growth, it is also exploring other opportunities in pursuit of long-term growth. “With a population of not much more than 25 million, Australia and the Pacific region does not have the market potential offered by the North American, European and Asian markets,” said Brett Godfrey. “However we believe significant growth opportunities exist for us in various aviation-related areas both in Australia and around the region.”

The Company is committed to ensuring its senior management team remains focused on running Virgin Blue and its Business Development Team is considering these growth opportunities. “This will ensure that the day-to-day focus is not shifted away from the core business – Virgin Blue Airlines,” concluded Brett Godfrey.