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