The West

Virgin s profit slumps 56pc

UPDATE 1.25pm: Virgin Australia's first half profit more than halved as a flood of extra seats forced down airfares.

Heavy discounting in the battle for passengers with rival Qantas Airways also prevented the airline from collecting the carbon tax - worth $24.4 million - from passengers, Virgin said this morning.

Virgin's net profit for the six months to December 31, 2012, fell by 56 per cent to $23 million.

Chief executive John Borghetti said the fact Virgin stayed profitable - albeit at a reduced level - highlighted the airline was a more resilient business able to cope with “all the shocks that are thrown” at it.

“We are used to dealing with floods, including now of the seat variety,” Mr Borghetti said during Virgin's results presentation.

“If this had happened 18 months ago, it would have been a different story. I would not have been here saying that we were making a profit, but we were making a loss.”

The result was a little below market expectations and investors pushed the stock down about four per cent.

Part of the reason for the profit fall was because of Qantas' industrial dispute in late 2011, which benefited Virgin.

While revenue rose five per cent to $2.11 billion - Virgin carried 10 million passengers in a half for the first time - profitability suffered as yields, an industry measure of average airfares per passenger, fell one per cent.

“Virgin is suffering from the same issue that you saw at Qantas, and that is excess capacity in the Australian domestic market,” White Funds Management investment manager Peter Borkovec said.

“That needs to be worked through before you can consider an increase in profitability.

“There were just too many planes with too many empty seats.”

Mr Borghetti said industry figures showed domestic capacity rose 10.8 per cent in the half - the highest increase in eight years - compared with the long term average of about four to five per cent.

Virgin said underlying costs, excluding fuel costs, fell 1.5 per cent, and the airline was on track to achieve $60 million in savings in 2012/13.

In the domestic market, Virgin added 8.9 per cent capacity in the first half, but forecast a more modest increase of between five to seven per cent in six months to June 30, the same as Qantas.

Virgin said the bulk of the increase would be replacing smaller Boeing 737s with widebodied Airbus A330 aircraft between Perth and Brisbane from May.

Underlying profit before tax - the airline's preferred measure of financial performance - came in at $61 million, down from $96.1 million in the prior corresponding period and a little below market consensus.

While Virgin did not provide specific earnings guidance, expectations for underlying profit before tax to be higher than the prior year's $82.5 million were unchanged.

Virgin shares closed down 2.5 cents, or 5.75 per cent, at 41 cents.

No dividend was declared.

The West Australian

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