Virgin’s cost campaign takes off

A SWEEPING cost-control program is starting to bear fruit at struggling airline Virgin Australia, which has narrowed its full-year loss despite challenging trading conditions.

And the competition regulator has added to the tailwinds, approving Virgin’s codesharing alliance with China’s HNA Aviation for five years in a major boost to its ambitions to secure a foothold in the burgeoning Chinese market. Australia’s second biggest airline yesterday posted a $220.3 million loss for the year to June, narrowing its loss of $260.9 million a year earlier.

Its underlying loss, which strips out one-offs, was $3.7 million, supported by an improved performance in its fourth quarter. Group revenue was 0.5 per cent higher at $5.05 billion, buffeted by a subdued domestic market.

Virgin, which has struggled to regain its footing in the wake of a damaging capacity war with bigger rival Qantas, has poured its energy into stripping costs out of the business.

Yesterday it announced it had $34.3 million in free cash flow — a $316 million improvement in just two years — while its net debt had been pared back by $839 million from a year ago. No final dividend was declared.

Virgin chief John Borghetti said the airline had axed some services on the back of reduced demand for regional and corporate travel.

“We managed capacity prudently in response to these conditions, with sectors flown declining by 5.9 per cent on the prior financial year,” he said.

Mr Borghetti said the airline expected the momentum to continue, and said its restructuring program would deliver further results.