Virgin Australia increases trans-Tasman flights, signals return to profitability next year

See also: Part Air NZ-owned Virgin signals return to profit

Virgin Australia Group, Australia's second-largest airline, says it will increase flights to New Zealand from October and has signalled a return to profitability in the next financial year.

The increased flights across the Tasman and on Pacific routes, planned in conjunction with its alliance partner Air New Zealand [NZX: AIR], represent more than 52,000 additional seats during the 2016 financial year, the company said in a statement. The additional flights include two return services a week from Sydney to Christchurch and one return service a week from Melbourne to Christchurch. As well a number of extra seasonal flights will be added mainly over the busy December/January period.

The Queensland-based airline confirmed today full-year underlying pretax loss of A$49 million in the year ended of June 2015, an improvement of A$162.7 million on the previous financial year. It narrowed its statutory net loss to A$93.8 million from A$353.8 million a year earlier, and booked about A$60 million in savings from the decline in oil prices. That was partly offset by a A$35 million negative impact of a weaker Australian dollar on operations.

Virgin Australia chief executive John Borghetti said based on current market conditions, all fundamental business metrics are on track for the group to return to profitability and report a return on invested capital in line with its cost of capital for the 2016 financial year. Its current cost of capital is 10 percent.

"Over the past financial year the group's return on invested capital has increased from 4.1 to 6.1 percent. Improving our return on invested capital will continue to remain a strong focus for the group," he said.

The company said it was also on track to deliver a 25-to-20 percent improvement in financial leverage for the 2017 financial year.

Rival Qantas Airways is forecast to report a A$960 million underlying pretax profit for the 2014-2015 year, following a successful cost-cutting programme, when its annual results are released on Aug.20.

Today's Virgin result includes a significant improvement from its Tiger Air subsidiary which reported earnings before interest and tax growth of A$42.7 million and is also on track to profitability in the next financial year.

Virgin plans to launch the Tiger Australia brand in the short-haul international market with Denpasar in Bali, its first international destination. From March next year Tiger Australia will use three Boeing 737-800 aircraft for daily and weekly return services from Perth, Adelaide and Melbourne to Denpasar.

Virgin Australia International, which operates across the Tasman, reported an underlying Ebit loss of A$68.9 million, down A$22.8 million from the previous year. Revenue was down 3.3 percent with increased competition, particularly in the south east Asian and long-haul markets, constraining yield recovery. In recent months it has introduced business class on the Tasman and Pacific routes and integrated management of its New Zealand operations into the rest of the international business.

The ASX-listed shares last traded at 44 Australian cents, and have increased 4.8 percent this year.

(BusinessDesk)