Virgin Australia sinks to $714m statutory loss

Virgin Australia has sunk to a net statutory loss of A$653.3 million ($714m). Photo / 123RF

Virgin Australia has sunk to a net statutory loss of A$653.3 million ($714m) despite its strongest underlying profit in a decade and record revenue.

The after tax loss for the year June 30 followed came after the airline was in the red by A$185.8m last year.

The airline, which is expanding operations in this country following a bust up with Air New Zealand, said the heavy loss was due to major accounting adjustments following a review of the group's asset values in accordance with accounting standards.

"As a result of the review, approximately A$4521 million in deferred tax assets have been derecognised and there has been a A$120.8 million impairment of the assets of the Virgin Australia International business," said Virgin chief executive John Borghetti.

Underlying profit before tax was A$109m, an improvement from last year's A$3.7m loss. During the past year the group faced a A$45m fuel headwind.

Group revenue was up 7.4 per cent to A$5.4b, a record.

Borghetti said the Virgin Australia domestic business recorded its highest earnings margin results since domestic segment reporting began. The domestic business makes up about two thirds of the airline's revenue.

The statutory result was also hit by restructuring charges as it simplifies its fleet — moving to more Boeing 737s. These amounted to about A$148.5m, A$96.7m less than similar charges the previous financial year.

Borghetti said the adjustments were non-cash and did not impact the fundamentals of the group's underlying business and he said the airline would benefit in the long term.

The Virgin result contrasts with the two other big airlines in this region. Last week Air New Zealand reported a net profit after tax of $390m and Qantas whose full-year net profit was A$980 million.

In April Air New Zealand said it would not renew a seven-year alliance with Virgin. The airlines will go their separate ways from the end of October with both announcing capacity increases and Virgin starting some new routes, including a seasonal service between Auckland and Newcastle. It is also introducing fares that are all inclusive of food and bags.

Borghetti, who has announced he will leave Virgin, said today that the results show the business is in a good position to achieve "sustainable profitability" in the future.

Based on current market conditions, group revenue for the first quarter of the 2019 financial year was expected to grow by at least 7 per cent on the corresponding quarter in the past year.

"The group expects to be profitable at the underlying profit before tax and statutory levels in the first half of the financial year notwithstanding an expected fuel price increases [net of hedging and foreign exchange] of A$85 million."

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