Virgin Australia flags $49 million loss as Qantas dogfight continues

By David Flynn, February 6 2014

Virgin Australia expects to chalk up a $49 million loss for the July-December 2013 period, adding to Qantas' estimated $250-$300 million losses for the same period to create a record high tide of red ink for Australia's airlines.

Virgin's forecast came on the heels of a shock drop in its share price yesterday, plummeting to a two-year low of 28 cents (with a rebound to 31.5 cents by day's end) as analysts revise their predictions for the first half of the 2014 financial year – a period which is traditionally the strongest of the two for airlines.

However, that $49 million figure doesn't take into account Virgin's share of the continued losses faced by Tigerair Australia.

By comparison, July-December 2012 saw Virgin land a post-tax profit of $23 million.

Although this swung to a net loss of $98.1 million by June 2013, those numbers were blown out by one-off costs such as the acquisition of SkyWest and buying into Tiger Airlines Australia as well as switching over to the Sabre reservations system.

The wrong Virgin

Virgin Australia suggests there is also confusion in the market over Virgin Atlantic's decision to pull out of the Australian market.

“We have received feedback that this has caused some confusion in the market with people mistakenly assuming that Virgin Atlantic is the same entity as [Virgin Australia]" it told the ASX in a statement.

While both carry the widely-recognised Virgin brand and maintain a partnership via shared flights and frequent flyer programs, their only common link is Richard Brandon's Virgin Group, which owns 51% of the Atlantic franchise against a 12.5% foothold in the local airline.

Virgin Australia will release its July-December 2013 on Friday February 28th, one day after Qantas reports its own numbers on Thursday 27th.

While being a far leaner operation than Qantas gives Virgin Australia relatively little leeway to make cuts, its supportive cornerstone partners Air New Zealand, Singapore Airlines and Etihad Airways hold almost two-thirds of the airline's stock and late last year committed close to $350 million of additional capital to shore up the war chest as Virgin continues its domestic dogfight with Qantas.

Food fight

This week saw Virgin Australia begin serving free snacks and drinks in economy class on all flights between Sydney, Melbourne and Brisbane, ahead of the introduction of free meals and drinks on all domestic Virgin Australia flights later in the year.

The move is intended to further close the gap between Virgin Australia and Qantas. The Flying Kangaroo offers free food and drink to all passengers on all domestic flights and often holds this up as as a differentiator against Virgin, along with the inclusion of free checked baggage on all tickets.

This month marks two years since Virgin Australia launched business class across all domestic flights, which has seen Virgin claw out a sizeable chunk of Qantas' domestic market share.

Read: Virgin Australia – two years into the business travel battle...

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David

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

Qantas - Qantas Frequent Flyer

30 May 2013

Total posts 303

I don't know why Qantas promote the fact they offer free food. Tne 'lunch' service offered to me on a recent Hobart flight was a melting moment biscuit.


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