Virgin Australia swings to first-quarter loss on soft demand

Virgin has swung to a first-quarter loss as soft domestic conditions and restructuring costs drag on profit.

Virgin Australia chief executive John Borghetti at the release of the company's half-year results in Sydney earlier this year. (Hollie Adams/The Australian)

Virgin Australia has swung to a loss in the first quarter, weighed by lacklustre conditions in the domestic market.

For the three months to September 30, the second-largest domestic carrier (VAH) booked an underlying pre-tax loss of $3.6 million, as against a profit of $8.5m in the corresponding period last year.

Restructuring charges exacerbated the net loss, which reached $34.6m for the quarter.

Virgin said it was “actively managing” its capacity given soft local trading conditions.

“This result was impacted by subdued industry trading conditions during the quarter, particularly in the domestic market, which affected revenue,” the group said.

Virgin’s view of muted domestic demand follows a mixed result from rival Qantas last week, in which the national carrier also warned on a “subdued” local environment.

Qantas’ shares have bounced around since its quarterly report given talk of strong local margins balancing a slight reduction in forecast capacity growth and a projected fall in first-half earnings.

Meanwhile, Virgin said its total available seat kilometres — a core measure of performance — weakened 0.5 per cent on the quarter. In contrast, Qantas saw a 2.2 per cent rise, although this was entirely driven by its international arm.

“The group will continue to exercise disciplined capacity management in line with trading conditions,” Virgin said.

The airline added total revenue passengers increased by 4.8 per cent for the quarter, while revenue load factor improved by two points and cost per available seat kilometre decreased compared to the prior corresponding period.

Virgin has stepped up its fuel hedging program in a bid to lock in low prices, with 90 per cent hedged for the 2017 financial year and work underway to push the program into fiscal 2018.