Virgin Australia will reduce its capacity by 5.1 per cent in the June quarter after forecasting a loss in the second half of the financial year.
The airline reported an underlying loss before tax of $18.6 million in the March quarter, better than the $22 million loss in the year-earlier period.
But Virgin now expects to report a total underlying profit before tax of $30 million to $60 million this financial year, having reported an underlying profit before tax of $81.5 million in the first half. That would not meet its prior target of reporting a return on invested capital in line with its cost of capital this financial year.
Before the guidance was released, analysts had expected Virgin to report a full-year underlying pretax profit of $84 million, a figure that had already been reduced since the start of the financial year.
Virgin chief executive John Borghetti said the operating environment was challenging and had been impacted by weak consumer demand and sentiment, uncertainty around the federal election and the resources dowturn.
Virgin said its statutory loss more than doubled to $58.8 million from $28.3 million in the year-earlier period because of restructuring charges including the removal of surplus ATR72 turboprop capacity due to the resources downturn.
"The fleet restructure charges ... along with further initiatives to come, will provide us with significant cost savings going forward," Mr Borghetti said.
Virgin had previously announced it would place all eight of its Fokker 50 aircraft up for sale and would also dispose of five of its 18 E190 aircraft. It is understood the airline now also plans to sell three of its 14 ATR72s. It will cut the number of flights in regional Queensland and switch some of its flights within Western Australia to F100s from larger Boeing 737s.
The overall capacity cuts also include changes to international services. Its 777 aircraft flown to Los Angeles and Abu Dhabi are being outfitted with new business-class seats that result in a 6 per cent fall in seat numbers. It has halted Abu Dhabi flights while the refurbishments are being completed.
Domestic capacity is expected to fall by around 3 per cent in the June quarter, with the remainder of the 5.1 per cent cut coming from the international business.
Virgin in March tapped its major shareholders for a $425 million loan to help repair its ailing balance sheet. Shortly afterward, Air New Zealand said it would seek to sell all or part of its 25.9 per cent stake in Virgin.
Qantas last month said it had revised plans to add seat capacity in the June quarter because of softness in demand related to the upcoming election and a recent drop in consumer confidence.
Like Qantas, Virgin said it had been affected in the March quarter by the difference in the timing of Easter and school holidays in some states. The year-earlier results had also been buoyed by people attending the Cricket World Cup.
The first half of the financial year is typically stronger for airlines, but Qantas is forecast to report a profit in the second half, albeit less than in the first half.
Virgin's operating statistics for the March quarter showed the airline had raised its domestic mainline capacity by 1.6 per cent and Tigerair's capacity had increased by 14.1 per cent. Virgin's international capacity fell by 2.2 per cent during the same period.
However, Virgin did manage to increase the percentage of domestic mainline seats filled to 75.4 per cent from 74.3 per cent a year ago.
Virgin did not comment on domestic yields, or average airfare prices, but there are signs they have been under pressure.
A report by consultancy groups CAPA and 4th Dimension released last month found the average price of domestic airfares had fallen by 5.77 per cent in the March quarter after having risen by 8 per cent to 9 per cent last year, when demand was stronger.
Macquarie Equities analyst Sam Dobson said Virgin's "swift, rational response" to demand weakness highlighted its focus on profitability.
"Both Qantas and Virgin will benefit from [capacity] cuts, which will support load factors and stimulate yield growth," he said.
(culled from www.smh.com.au)
No comments:
Post a Comment