Vir­gin’s tak­ing off Cost cut­ting bears fruit, China al­liance a ma­jor boost

Townsville Bulletin - - NEWS - PAUL GILDER

Townsville 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 travel space.

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 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 seat 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 its 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 pos­i­tive mo­men­tum in the fourth quar­ter to con­tinue, and said its three- year re­struc­tur­ing pro­gram, called Bet­ter Busi­ness, would de­liver fur­ther re­sults as it en­tered its sec­ond year.

Shares in the group yes­ter­day ral­lied 1c, or 5.7 per cent, to 18.5c.

Mr Borghetti said the ACCC’s ap­proval of the al­liance be­tween Vir­gin and HNA – which runs Hainan Air­lines – and two other Asian car­ri­ers would strengthen tourism and trade ties be­tween Aus­tralia, Hong Kong and main­land China “and bring more trav­ellers to Aus­tralia”.

Vir­gin op­er­ates five weekly di­rect ser­vices be­tween Mel­bourne and Hong Kong and said the ac­cord would al­low it to ex­plore new di­rect ser­vices to China.

IbisWorld an­a­lyst Nick Tar­rant said the new routes might help Vir­gin re­gain in­ter­na­tional mar­ket share, with the group squeezed by Air New Zealand and heavy­weights Sin­ga­pore and Emi­rates, and un­der­cut by low­cost Asian car­ri­ers.

The car­rier also an­nounced nonex­ec­u­tive direc­tor David Baxby would be stepping down from his role with im­me­di­ate ef­fect as he has been ap­pointed by Wes­farm­ers to head up its in­dus­tri­als divi­sion..

DEBT PARED BACK: John Borghetti CEO from Vir­gin Aus­tralia ex­pects the pos­i­tive mo­men­tum in the fourth quar­ter to con­tinue. Pic­ture: ADAM TAY­LOR


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