Virgin cuts Bali routes on path to profit
Virgin Australia is overhauling its loss-making international operations as it targets a return to profitability in 2015/16.
The airline will cut services from Melbourne, Adelaide and Perth to Bali, handing the routes off to its low-cost subsidiary Tigerair Australia, and will also axe its Perth to Phuket services.
Virgin will also add additional flights on Trans-Tasman routes as well as between Australia and Samoa, Fiji and the Solomon Islands during peak periods.
The decision to use Tigerair Australia on international routes for the first time comes after weak demand for premium air travel from budget-conscious Bali travellers helped drag Virgin’s international division to a full year loss.
The division posted an underling earnings before interest and tax loss of $68.9 million, which offset a better performance from the airline’s domestic operations and frequent flyer business.
Virgin posted an underlying group loss of $49 million for the 2014/15 financial year and a net loss of $93.8 million, which is an improvement on the $353.8 million it lost the previous year.
Chief executive John Borghetti said the airline was on track to return to profitability in the 2015/16 financial year, assuming a turnaround in the international business.
“As a result of the progress on our strategy to date, we are now on a positive trajectory and on track to significantly improve financial performance again for the 2016 financial year,” he said in a statement.
“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.”
Analysts expect the airline to post an underlying profit of around $147 million for 2015/16, which would be its first profit in four years.
Virgin’s domestic business lifted underlying earnings by $210 million to $111 million for the year, helped by lower fuel prices and the end of its so-called “capacity war” with rival Qantas.
Its Velocity Frequent Flyer loyalty business lifted revenue by more than 18 per cent and underlying EBIT to $81.2 million after adding an average of 2,400 new members per day during the year.
Tigerair Australia, which Virgin took full ownership of in October, showed an EBIT loss of $8.6 million during the year but is expected to post a profit in 2015/16.