Virgin losses grow, stake in frequent flyer program sold off
Virgin Australia has more than trebled its full-year loss to $355.6 million, and is selling a minority stake in its Velocity frequent flyer program.
The airline says its underlying result was a smaller loss of $211.7 million, roughly in line with market expectations.
Like Qantas, but on a far smaller scale, Virgin's statutory result was dragged lower by asset impairment writedowns of $56.9 million and restructuring costs of $117.3 million.
Virgin says its profit, both statutory and underlying, was dragged $51.6 million lower by the cost of the carbon tax, now repealed.
"The 2014 financial year has seen one of the most difficult operating environments in the history of Australian aviation," said the airline's chief executive John Borghetti.
Unlike Qantas, which forecast a return to underlying profit in the current half-year, Virgin says economic conditions are too uncertain to offer earnings guidance, and the airline has also decided not to provide capacity growth guidance going forward.
Capacity 'war had to happen'
In an interview on News 24, Mr Borghetti said a battle for capacity was inevitable when Virgin entered the market and took on the incumbent, Qantas.
"The war had to happen, but ultimately it's a question of whether the new entrant can sustain that attack or not, and I think in our case we proved we have," he said.
"It was the war that had to happen for us to earn the right to exist, and I think we've earned that right now."
However, in a separate interview with ABC radio's The World Today, Mr Borghetti denied that his company started a capacity war to win a particular share of the domestic market.
Instead he argued that Virgin had to increase the frequency and coverage of its services to compete with Qantas in business travel.
"Because we were after the corporate and government business as a sector we wanted to expand in, we needed to have a footprint in our domestic business that was attractive enough to the customer," he said.
"That required a few things, but two in particular: the first was wide-body aircraft between the east coast and the west coast ... because of the distance and the way that capacity is measured the growth rate seems significant, when in fact you're just replacing one aeroplane; and what we did say was we needed to tweak our schedules between Melbourne Sydney and Brisbane, which we did."
In the News 24 interview, Mr Borghetti denied using the deep pockets of his state-backed major shareholders to fund a loss-making capacity war.
Virgin sells Velocity stake
The company is also selling a 35 per cent stake in its Velocity frequent flyer program to fund manager Affinity Equity Partners, which the airline says values the total program at $960 million, implying a $336 million deal.
Velocity will be split into a separate company with its own board, but Virgin will maintain a 65 per cent stake and a majority of the board positions, including chair.
The deal is subject to Foreign Investment Review Board approval, and Virgin anticipates that it will be completed by October.
The proceeds will be used to lower the company's debt and improve its cash position.
Virgin shares were up half a cent to 41 cents by 1:37pm (AEST), while Qantas built on yesterday's strong gains with a further 6 per cent rise on a raft of broker upgrades.
