The push for more business and corporate travellers has lifted Virgin Australia’s first half profit past that of rival Qantas Airways and sent the stock to a three-month high.
Virgin said net profit for the six months to December 31, 2011 came in at $51.8 million. The result more than doubled the $23.8 million Virgin posted in the prior corresponding half.
It also surpassed the $42 million the Flying Kangaroo, which is an airline four times Virgin’s size, achieved over the same period.
Virgin said underlying profit before tax – the airline’s preferred measure of financial performance – rose 34 per cent to $96.1 million, well above market expectations of $79.7 million.
Investors cheered the strong result, sending Virgin shares up 8.22 per cent, or three cents at 39.5 cents. It was the stock’s highest close since November 14.
Chief executive John Borghetti said the improved financial performance was a consequence of the changes the airline had made, and was continuing to make, to attract a greater share of the business travel market dominated by Qantas.
“Really, today the results illustrate that our strategy is right, and that the results are starting to flow through,” Mr Borghetti said
Figures from Virgin showed the airline lifted total revenue 18 per cent to $2 billion.
Corporate and government accounts now comprised 17 per cent of total revenue, up from 13 per cent at the end of 2010/11.
“We are at least six months ahead of where I thought we would be in terms of share at 17 per cent,” Mr Borghetti said.
“So I’m very confident that in the remaining 18 months we will definitely make our target of 20 per cent.”
Domestic yields – which indicate average fares per passenger – rose 13.7 per cent, Virgin said, adding that the yield improvement in the first half had continued into January.
Morningstar analyst Nachiket Moghe said the figures were quite positive, with the higher yields the standout feature.
“I was expecting five or six per cent and it turned out to be 13 per cent,” Mr Moghe said.
Virgin did not offer specific earnings guidance, saying only it expected the full year underlying result to be an improvement from the prior year, when the airline posted $67.8 million loss.
Mr Borghetti said it was too early to offer a firmer outlook statement, citing the uncertain economic environment.
“The second half of the year is always the weakest and indeed the last four years we have lost money,” Mr Borghetti said.
The Centre for Aviation said it would take a major event for Virgin not to post a full year result in the black.
“In order for the company not to be profitable, there would have to be significant structural changes, including a drastic increase in fuel or major drop in demand,” the centre said in a research note.
