Virgin Blue business sound despite half-year loss

Virgin Blue Holdings Limited today reported an underlying net profit before tax of $60 million for the six months to 31 December 2008, though overall the company made a loos over the period of $101.4 million.

That underlying net profit excludes a non-recurring $60.6 million after tax investment in V Australia (including a $42 million unrealised foreign exchange loss) plus an $80.8 million after-tax expense relating to ineffective fuel and currency hedges. “Our underlying business remained resilient despite an exceptionally challenging and historically unprecedented operating environment,” said Brett Godfrey, Virgin Blue Airlines group chief executive. “One standout is the fall in the underlying non-fuel, cost per available seat lilometre (CASK) of 1.2% to 6.55 cents – a true testament to the strength of character of our team.”

Godfrey said that effective capacity management and cost containment programmes initiated at the start of the downturn last June had enabled the core business to remain profitable, and had substantially reduced planned growth in the domestic market from a budgeted 20.2% down to 4.5% for the full 2009 financial year. Furthermore, the annualised impact of the removal of this capacity result in fiscal year (FY) 2010 domestic growth being –2.4%.

The company achieved an 11.5% increase in revenue for the six months to $1.35 billion up from $1.21 billion for the equivalent past reporting period, while total revenue per available seat kilometre (RASK) declined 4.0% to 10.27 cents.

Virgin Blue’s board believes its current outlook for FY09 remains challenging but that no change in guidance – last given at the company’s November 2008 AGM – is required at this time.

The company has escalated its programme to insulate the business against the possibility of a further deterioration in domestic demand through a range of measures, including: the removal of a further 8% annualised capacity or up to 5 aircraft, from Australian domestic flying by 1 May 2009, with these aircraft to be managed as operational spares and not redeployed until the second half of 2010; reduction of staff levels by up to 400 full time equivalent positions, although to minimise the need for involuntary redundancies, a range of measures are being explored including job sharing, leave without pay, transfers to other business units or airline’s within the group, part-time and reduced hours; general managers and the executive management team committing to a reduction of 20%-30% of their annual cash compensation; the board committing to a 10% reduction in directors’ fees; and a further $40 million in cost savings identified and targeted to be achieved in the second half of FY09.