Virgin Australia results ravaged by restructuring costs

Despite underlying profit landing in guidance range, restructuring costs have decimated Virgin’s FY result.

While Virgin’s underlying result was in line with expectations, the airline’s statutory loss for the year blew out to $224.7m as the carrier started to record the costs of its wideranging cost restructure.

Virgin Australia has posted an underlying profit before tax of $41 million for the 2016 financial year as the airline increased revenue after reducing the capacity of its flights earlier this year.

The airline’s profit result was on the lower end of its guidance which was to post a profit before tax for this year of between $30m and $60m.

The underlying profit result — including the results of its budget carrier Tigerair — represented a $118.6m improvement on its FY15 results.

But while Virgin’s (VAH) underlying result was in line with expectations, the airline’s statutory loss for the year blew out to $224.7m as the carrier started to record the costs of its wideranging cost restructure.

The airline has recorded 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 from its cost-saving program that would see Virgin sell underused aircraft, rationalise its supply chain and reduce jobs across crew, ground, maintenance and engineering operations.

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

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

The airline’s fourth quarter result saw it increase fare-paying customers by 4.2 per cent to 5.8 million which helped push revenue passenger kilometres — a measure of sales volume — by 1.3 per cent.

The airline’s domestic business performed well in the fourth quarter after cutting capacity by 2 per cent earlier in the year and it increased its revenue passengers by 4.6 per cent to 4.3m.

But Virgin’s International business lagged with a 14 per cent drop in fare-paying customers to 548,162.

Business at Virgin’s low cost carrier Tigerair continued to boom with a 15.4 increase in passenger numbers to over 1 million for the quarter.