Virgin Australia Expects to Beat Costs Goal, Won't Give Profit Guidance
05 August 2016 - 9:40AM
Dow Jones News
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 rebecca.thurlow@wsj.com
(END) Dow Jones Newswires
August 04, 2016 19:25 ET (23:25 GMT)
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