Virgin Australia has posted a second profitable year in a row as it gears up for an overseas expansion, with a leading expert saying its investment in new planes is paying off.
Australia’s second largest airline revealed this week that it booked $519 million in before-tax earnings over 2023-24 on the back of a 6.8 per cent rise in group revenue to $5.4 billion.
Veteran airline consultant Neil Hansford said the result reflected a “low risk” strategy after Virgin’s investment in aircraft and slowly “eating away” at Qantas’s business market.
He said Virgin had brought on six new Boeing 737 Max-8 aircraft in the past year alone, which had helped underpin growth in earnings margins from 8.8 per cent to 9.7 per cent.
“They’re sticking to the knitting,” Hansford said.
“They’ve run the business fairly risk free and they’ve got new equipment coming in.
“They’ve been able to introduce the first tranche of Max 8s, which are giving them fuel benefits.”
Virgin has also invested in improving its flyer experience in the past year, rolling out baggage tracking across its network and a self-service rebooking tool when flights are cancelled or delayed.
More broadly the result is a positive result for Virgin as it prepares for an international expansion after it was announced last month that Qatar Airways may buy a 25 per cent stake in the airline.
That deal will require federal government approval. In the meantime Virgin’s key backer Bain Capital still hopes to divest from the airline at some point, including through a float on the ASX.
Virgin chief executive Jayne Hrdlicka, who has said she plans to leave the airline, characterised the airline’s second profitable year in a row as a “very strong performance”.
“Continued improvement in profitability means we are well positioned to deliver great value and choice to Australian travellers,” Hrdlicka said.
“It is essential to our ability to reinvest in our business and customer experience, and vigorously compete with our major competitor.”
Virgin’s chief financial officer Race Strauss pointed to the company’s transformation program in delivering stronger financial results, saying the airline’s cost base has been reduced.
“While we are operating in an environment of higher costs, our disciplined approach to cost management has enabled us to deliver even better value for our customers,” he said.
The business has also found success expanding its market position; though it is still not near the scale of Qantas, it has managed to expand its position in the airline loyalty market.
That is reflected in the 23.8 per cent increase in Velocity Frequent Flyer revenue to $409 million over the financial year, with more than 12 million Australians members of the scheme.
But Hansford said that Virgin’s biggest challenges lay ahead, with the prospect of a higher-risk international expansion on the horizon if the Qatar Airways tie up is approved.
“Going international, I think, is a year or two too early,” Hansford said.
“It’s not as if they’re taking Qantas on; they’re taking on Emirates, Singapore and other robust carriers owned by governments. Those airlines don’t have a cost of money [interest costs].”