Virgin Australia will axe 750 jobs and seek other cost savings after reporting an underlying loss of A$75 million ($50.7 million) for the year to 30 June.
The loss is a contrast to the A$64.4 million underlying profit reported in the previous fiscal year, but was expected after it warned in May that it expected the result to be down by at least A$100 million.
Fuel and currency movements added A$159 million in costs over the year, while increased depreciation due to product investment and the drawdown of Tigerair Australia's Airbus A320 fleet also dragged the results down.
Revenue rose by 7.6% to A$5.8 billion despite the airline experiencing a "deterioration in revenue conditions" during the second half of the year. RASK improved 2.1%, while group load factor was up marginally to 80.2% as RPK growth accelerated ahead of capacity growth.
Despite the fall to an underlying loss, Virgin's net loss halved to A$315 million, although that was largely due to lower charges for deferred tax assets that were recognised in the previous financial year.
Cash and cash equivalents at 30 June amounted to A$1.74 billion, which was boosted by an A$250 million bond issuance, and A$470 million net inflow from its operations.
Most of the fuel impact was felt on Virgin's core domestic network, which reported an 34% fall in earnings before interest and tax (EBIT) to A$133 million. Like its rival Qantas, Virgin noted that conditions in the second half of the year were impacted by lower business confidence and an election in Australia.
Virgin's international operations posted a larger EBIT loss of A$75.6 million, compared to a loss of A$21.7 million in the previous year, which again reflected higher fuel costs and investments related to new route launches.
Budget unit Tigerair Australia's EBIT loss rose 14% to A$45 million, impacted in part by A$11.6 million in accelerated depreciation as it continued its transition from an Airbus A320 to a Boeing 737-800 fleet.
Chief executive Paul Scurrah noted that while external conditions were tough, it had to focus on lowering its cost base to become more sustainable.
"While we have continued to grow revenue and have a strong loyal customer base, we need to make changes to our costs to ensure we see financial benefit from the growth of our business," he adds.
In line with that, it is targeting to eliminate 750 jobs across the group by the end of the 2020 fiscal year, most of which will come from head office and corporate positions. That is expected to generate savings of around A$75 million.
A further A$50 million in savings is expected to come from cuts through its supply chain and renegotiating some contracts.
Having cut capacity by 1.5% in the May-June period, the airline expects further capacity cuts over the first half of the 2020 fiscal year on its domestic and short-haul international routes.
Despite the efforts to contain costs, the airline adds that it still expects a further A$100 million headwind due to fuel and currency costs over the next fiscal year.
Source: Cirium Dashboard
