Virgin Australia: Delivering on goals, but stronger performance expected in a favourable environment

Premium Analysis

Virgin Australia has made significant inroads in its return to profitability; a commitment to cost leadership has contributed to decreasing costs, driving domestic yield growth, while the airline has made impressive inroads into increasing its corporate and government travel share. Despite significant odds, Virgin has also made advances in the lucrative freight business.

But given an extremely favourable operating environment, many expected the result to be better. Virgin's results for the six months to 31-Dec-2015 showed that the market is again stable, with its domestic operations improving markedly to an AUD130 million (USD94.0 million) EBIT profit, up 86.5%. Promisingly, domestic market growth is now delivering significantly improved yield - albeit with a lower traffic figure.

International operations have continued as an area of poor performance for the group for as many periods, primarily a result of its exposure to Southeast Asia and volcanic activity in the region, resulting in an AUD30.8 million (USD22.3 million) EBIT loss, compared with a loss of AUD39.5 million (USD28.6 million) in 1HFY2015. Deploying Tigerair Australia to take over leisure routes will be positive; it is better suited to Virgin's full service proposition and cost base, but success is not guaranteed.

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