Virgin Australia issues profit warning

Virgin Australia Terminal Adelaide Airport (YPAD/ADL) taken by Bryan Pearce on 8 September 2017

Virgin Australia’s new Chief Executive Paul Scurrah, has revealed that the company expects full year underlying earnings to be $A100 million ($US68.72 million, £53.99 million, €61.56 million) less than last year. That would result in a minimum loss of $A35.6 million ($US24.6 million, £19.22 million, €21.91 million). Revenue, however, is expected to grow 6% for the full year.

Mr Scurrah said, “While we have continued to grow revenue, this announcement shows that our business needs to become more resilient to challenges such as weaker demand, high fuel prices and foreign exchange environment. There is a lot of work being done to develop our new strategy that will help position the group for long-term success. In the meantime, we are focused on short-term improvements.” Virgin also said “the corporate sector has been affected by the timing of the Easter holiday period and has been slow to recover due to the impact of the [Australian election on 18 May]” contributing to the loss.

The announcement led Virgin Australia shares to close down 5.4% to 17.5 cents (US 12 cents, 9.4 Pence, 11 Euro cents).

As a result of the loss the airline will cut capacity by 1.5% across the network and conduct a network review. Routes affected include flights to and from Perth and Canberra, plus flights to the regional towns of Kalgoorlie, Ballina and Prosperine. This follows earlier announcements of reductions in Trans-Tasman routes. Auckland-Sydney will see a reduction of 3 return services per week from late July to September. The Sydney-Christchurch route will also become seasonal.

CAPA Centre Aviation chairman Peter Harbison told Nine Media, “Qantas is also squeezing Virgin very hard at the moment on all fronts. [But] if you want to provide a competitor service to Qantas, then you’ve got to have an effective route network, which is a matter of both routes served and frequency. [Qantas is] just really exerting a lot of market pressure that a participant in the market who’s got two-thirds of the market is able to do.”

The Virgin Group consists of Virgin Australia, Virgin Australia Regional Airlines, and Tigerair Australia.

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