Restructure takes $224.7m bite out of Virgin bottom line

Virgin Australia’s full-year losses have more than doubled to $224.7 million.

John Borghetti says Virgin is ‘growing our domestic passenger numbers and load factors’.

Virgin Australia’s full-year losses have more than doubled to $224.7 million as the one-off costs of its wide-ranging restructure took a big chunk out of the No 2 airline’s bottom line.

The company lost $93.8m in the 2015 financial year.

The blowout came after Virgin decided to record the bulk of the impairments and restructuring costs associated with its three-year cost-cutting plan in the final quarter of its 2016 financial year.

This included $100m in re­structuring costs and $175m in non-cash balance sheet impairments that will make it necessary for Virgin to sell underused aircraft, rationalise its supply chain and cut jobs across crew, ground, maintenance and engineering operations over the next three years.

Virgin decided to record those costs in the last quarter of the 2016 financial year so they don’t weigh on the forward balance.

Impairments and write-offs ­totalling at least another $100m are expected to be spread over the next three years as Virgin completes a cost-saving program that will help the airline save up to $300m from the end of the 2019 ­financial year.

Despite the one-off writedowns, Virgin was able to hit its underlying profit before tax forecast, returning a result of $41m for the 2016 financial year.

The underlying result — including the results of its budget carrier Tigerair — represented a $118.6m improvement on the previous year’s results.

But it was on the lower end of the airline’s forecast of between $30m and $60m in profits.

Virgin Australia chief John Borghetti told The Australian that while market conditions remained tough, the airline was on track to hit its 2017 operational targets. These included making Tigerair and its international ­operations profitable; capturing 30 per cent of the high-spending government and corporate market; reducing financial leverage; and hitting $1.2 billion in cumulative savings.

“Market conditions have been difficult, but we’re growing our domestic passenger numbers and load factors, due to attracting more passengers across segments including corporate and government and leisure,” Mr Borghetti said.

The airline increased fare-paying customers by 4.2 per cent to 5.8 million, which helped push revenue per passenger kilometre — a measure of sales volume — up by 1.3 per cent. It also increased its load factor by 4.5 per cent.

Like rival Qantas, Virgin has been reducing domestic capacity in the quarter, and dropped the number of seats being flown by about 2 per cent.

In the airline world, reduced capacity and increased revenue passengers equals fatter profit margins. But Virgin’s International business suffered a 14 per cent drop in fare-paying customers to 548,162. This was less than its capacity reduction on international flights of 18 per cent and came as the airline continued to upgrade its Boeing 777 fleet with its new business class cabins, as it removed its Perth to Phuket route and shifted its Bali service to Tiger­air.

“Load factors in the international business also improved, even as we removed some international routes and also reduced capacity so we could fit out our Boeing 777s with new business class and premium economy seats,” Mr Borghetti said.