Virgin Australia Expects to Beat Costs Goal, Won't Give Profit Guidance

   By Rebecca Thurlow 
 

SYDNEY--Virgin Australia Holdings Ltd. (VAH.AU), Australia's No. 2 airline by market share, said Friday it expected to beat a key goal for cost savings but wouldn't give specific profit guidance due to uncertainty in the aviation industry.

Virgin said it was on track to beat a target of 1.2 billion Australian dollars (US$915 million) in cost savings by the end of the financial year through June, 2017. Now, management is also targeting an additional A$300 million in net free cash flow savings by the end of the 2019 financial year.

Virgin made a net loss of 224.7 million Australian dollars (US$171.4 million) in the year through June as it booked costs for a fleet culling program designed to wind back capacity after years of investment to take on bigger rival Qantas Airways Ltd. (QAN.AU). However, its underlying pre-tax result swung to a profit of A$41 million, in line with guidance, from a loss a year ago.

In recent years, supported by big shareholders including Etihad Airways and Singapore Airlines (SINGY), Brisbane-based Virgin Australia has invested heavily in transforming its business from a budget carrier to a full-service airline, competing head-to-head with Qantas. The two airlines engaged in a damaging price war that caused losses for both companies before pressure from investors spurred them to scale back on capacity.

Qantas' finances have since rebounded strongly, but Virgin Australia's recovery has been less spectacular. In spite of falling fuel prices that have proved a boon elsewhere, Virgin Australia's heavy investment in recent years has left it more highly geared than Qantas, making it harder to compete.

"Based on current business performance, the group's positive momentum is expected to continue," Chief Executive John Borghetti said Friday. "However, due to market uncertainty, we are unable to provide further detail at this time."

Still, Virgin said its international business was on track to become profitable by the end of the 2017 financial year.

Chinese companies HNA Group and Nanshan Group bought stakes in Virgin Australia in May and June, respectively, as the Australian carrier sought fresh capital to shore up its balance sheet.

The airline this week completed a A$852 million offer of shares to existing investors, raising further funds to reduce debt and finance its cost-cutting program. Major shareholders including Singapore Airlines, Virgin Group, HNA and Nanshan participated in the offer.

-Write to Rebecca Thurlow at [e-mail]

(END) Dow Jones Newswires

August 04, 2016 19:25 ET (23:25 GMT)

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