Virgin airline releases full-year results after Qantas’ dire loss was revealed

A DAY after Qantas posted its worst loss in history, domestic rival Virgin Australia has also announced a loss of $355.6 million and revealed stake in frequent flyer program will be sold off.

A DAY after Qantas posted its worst loss in history, domestic rival Virgin Australia has also announced a statutory loss of $355.6 million.

The underlying before tax loss of $211 million is in line with market expectations but it is still more than double the 2012-13 result of a $98 million loss.

The airline will sell off a stake in its successful velocity frequent flyer program to raise $960 million in what they say has been an extremely challenging year for aviation.

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Virgin CEO John Borghetti said Asia Pacific investment firm Affinity Equity partners would buy 35 per cent of the Velocity program to “accelerate its growth”.

The move is designed to help Velocity go head to head with the Qantas Frequent Flyer program, the most profitable part of the Group’s business.

Mr Borghetti said Virgin would retain control of Velocity with majority representation on the board and 65 per cent if voting rights.

“The program remains a key value driver for the Virgin Australia Group,” he said.

Loss...Virgin Australia has recorded a statutory loss of $355.6 million. Picture: Marc McCormack

Velocity has 4.5 million members compared with over 10 million Qantas Frequent Flyers.

Virgin also announced it’s gains in the battle for the corporate dollar, declaring the business and government sector represents 25 per cent of domestic revenue up from 10.2 per cent last year.

Virgin Australia has blamed the $51.6 million cost of the carbon tax, excess market capacity and weak consumer sentiment for its loss.

Its domestic sector finished $59.2 million in the red and the international arm lost $66.8 million.

Virgin also lost $46.1 million on its 60 per cent share of budget airline Tigerair despite growth in passenger numbers.

CEO John Borghetti acknowledged 2014 had been an “extremely tough year for the industry” but he said he was confident the VA Group was in a strong position going forward.

“The next period for us is about maximising the group’s potential by extracting value from the business and generating sustainable profitability,” Mr Borghetti said.

Yesterday Qantas posted a full year after tax loss of $2.84 billion.

The loss came after a profit-draining battle with rival Virgin and another poor performance from its international division. The airline posted a bottom line net loss of $2.84 billion for the year to June 30, compared to a $1 million profit a year ago.

Excluding the writedown and other one-off costs, Qantas made an underlying pre-tax loss of $646 million, compared to a $186 million profit a year ago.

Qantas is attributing its massive loss to its $2 billion “Transformation” program as well as a $2.6 billion writedown on the value of its fleet.

Qantas has revealed a full-year after-tax loss of $2.84 billion. Picture: Getty

Qantas will need to come good on its promise to improve its earnings and lower debt in the next six months if it is to avoid another downgrade to its credit rating. Ratings agency Moody’s has reaffirmed its Ba1 credit rating for Qantas, which is one step below investment grade, but says the outlook remains negative.

A further downgrade to its credit rating could push up the airline’s borrowing costs.

Chief executive, Alan Joyce, remains positive and expects to return the airline to profitability in the first six months of 2014/15.

If the airline fails to do that, its rating could be downgraded. “We expect to see improvements in earnings and leverage level, and any lack of progress in this area over the next six months would likely lead to a rating downgrade,” Moody’s senior analyst Matthew Moore said in a statement.

Qantas plans to continue cutting costs, shore up its core domestic business and gain traction in returning its international operations to profitability.

Moody’s downgraded the carrier’s credit rating to junk status in January after the airline flagged a sharp decline in its earnings and a large first half loss.

Qantas haemorrhaged more than $7 million a day in the past year, largely because of its profit-draining battle with rival Virgin and a poor performing international division.

But the 2013/14 net loss figure was skewed by a $2.6 billion writedown to the value of the airline’s international fleet. Excluding that and other one-offs, the airline’s underlying pre-tax loss of $646 million was better than expected and saw Qantas shares rally on Thursday. AAP ews/jcc

Originally published as Virgin airline releases full-year results after Qantas’ dire loss was revealed