Virgin Australia has just announced a trading update for the second quarter of FY15 (2Q15), reporting an impressive turnaround to profitability:
- Virgin reported an underlying profit before tax of $55.3m for the quarter, which is an improvement of $47.6m on the corresponding previous quarter. Overall this equates to an underlying profit before tax of $10.3m for the first half of FY15
- Tigerair also reported an underlying profit before tax of $0.5m
- Yield growth and underlying cost per kilometre reductions were contributing factors to these improvements
Virgin’s previous guidance was for the second half of the year to be profitable, so achieving an underlying profit for 1H15 is an impressive result and has been well received by the market. The second quarter has been a significant turnaround after the reported loss in 1Q15 and the previous full year. The share price is up 2.2% on early morning trading making it one of the highest gainers in the equity markets this morning.
The benefit of lower fuel prices only amounted to a $7m in 2Q15 versus 1Q15, so much of the progress on cost and profit has come from underlying cost reductions. The benefits of lower fuel prices should come through in subsequent quarters as the company’s fuel hedges roll over.
In addition, Tigerair wasn’t expected to be profitable until 2017, so to see Tigerair making a small profit in 2Q15 is another small win from the company.