Domestic business, transformation costs drag Virgin Australia to A$98.1m loss

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Poor performance from its domestic business and transformation costs drove Virgin Australia to an Australian dollars (A$) 98.1 million ($87.7 million) net loss for the 2013 financial year.

The loss is consistent with earlier guidance issued by the carrier that it expected a loss of A$95-110 million for the year ending 30 June.

Total revenue came in at A$4.02 billion, up from A$3.92 billion recorded the year prior. Net operating expenses were higher at A$4.12 billion, compared with A$3.85 billion in the previous year.

Group yield remained largely steady at 11.08 Australian cents per RPK, while capacity in ASKs increased by 5%. Revenue load factor decreased by 2.5 percentage points to 75.6%.

The airline's underlying net loss came to A$72.8 million, compared with an underlying net profit of A$82.5 million for the 2012 financial year.

The airline noted that it had a total of A$105 million charged against its earnings that relates to its migration to the SabreSonic switchover computer reservation system as well as the acquisition of regional carrier Skywest Airlines and a 60% stake in Tigerair Australia.

"While the financial results clearly did not meet our initial expectations, the 2013 financial year was a pivotal year for Virgin Australia, in which we completed our major restructuring and transformation program and reshaped the competitive landscape of the Australian aviation market, despite a very difficult economic environment and intense competition" says chief executive John Borghetti.

Virgin's domestic business recorded an underlying earnings before interest and taxation (EBIT) loss of A$44.4 million, compared with an underlying EBIT profit of A$93.2 million for the 2012 financial year. The airline blamed increased competition with Qantas and an A$9.4 million EBIT loss from Skywest for the result.

The international business saw a 67% fall in EBIT to A$7.7 million, despite a 6.4% increase in revenue for the segment.

Virgin declined to give any guidance for the 2014 financial year. Borghetti, however, told reporters that having a regional carrier and a low-cost carrier in its portfolio means it has "never been in a more competitive position in every market segment in this country."

The airline plans to add 3-4% capacity to the domestic market over the next year, mostly through the addition of new regional routes. Borghetti declined to say how much capacity Tigerair Australia plans to add.

He says Virgin plans to unveil further enhancements to its product offering as part of the ongoing 'Game Change' strategy.

"Innovation will remain core to the Virgin Australia brand and we have a range of new product and service initiatives planned for the 2014 financial year to ensure we retain our leadership position, while maintaining a low cost base," says Borghetti.