Virgin Australia Provides Guidance; Expects Sharp Dip In Underlying Earnings

Conceived in 1970 by Sir Richard Branson, Virgin Australia Holdings Limited (ASX: VAH) is engaged in providing domestic and international flights service to its customers. The company has created more than 300 branded companies worldwide since its establishment that operate in various sectors like transportation, travel, financial services, mobile telephony, media, music and fitness.

In a trading update released today, the company provided earnings guidance for the 2019 financial year. The earnings forecast is backed by current economic conditions, capacity and forward booking trends.

The Virgin Australia Group notified today that the Group expects its FY19 underlying earnings to be $100 million below last year's result. The Group reported underlying earnings of $64.4 million in FY18.

Uncertainty of revenue trading conditions in the domestic market along with fuel and foreign exchange headwinds upwards of $160 million have been blamed by the airline for the downgrade.

The Group provided the following additional reasons for the anticipation:

  • Weak demand in both the corporate and leisure sectors
  • Lower levels of consumer and business confidence
  • Lower levels of consumer spending
  • Impact of the Federal Election

The airline informed that the corporate sector got affected by the timing of the Easter holiday period. Restoration of the sector has been slow due to the impact of the Election.

The Group anticipates 6 per cent revenue growth for the full year and below two per cent for the remaining 2 months of FY19.

Virgin Australia Group Chief Executive Officer and Managing Director, Paul Scurrah, stressed on the need of the airline to become more resilient to challenges like high fuel prices, soft demand and foreign exchange environment.

Recently, the Group and the Boeing entered into an agreement to restructure airline’s Boeing 737 MAX aircraft deliveries. The airline restructured its order book by postponing delivery of its first Boeing 737 MAX aircraft to July 2021 from November 2019. The airline will now transform an extra 15 of its 737 MAX 8 aircraft that are on order to 737 MAX 10s. This means that the first 737 MAX 8 will arrive in 2025. With this restructuring, the Group will get superior economic benefits of the MAX 10 aircraft.

On 26th Feb 2019, the airline announced the successful pricing of AUD 250 million senior unsecured fixed rate notes that was due to complete on 5th March 2024. These unsecured fixed rate notes were priced with settlement on 26th February 2019.

With the announcement of lower earnings in FY19, the VAH’s stock price dropped to AUD 0.175 on 17th May 2019, down by 5.4 per cent relative to last closed price. The stock opened at AUD 0.18 and varied between a high and low value of AUD 0.18 and AUD 0.17, respectively. About 3,582,881 number of VAH’s shares exchanged hands today. The market cap of the VAH at the time of writing the report stood at AUD 1.56 billion. The stock reported a negative YTD return of 9.76 per cent.


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