Cover of VAH FY2016 presentation, available from the ASX
Cover of VAH FY2016 presentation, available from the ASX

Virgin Australia’s CEO John Borghetti quipped that he’d like to ‘buy the whole company’ at the end of his FY2016 briefing this morning when asked about market rumours that it might be privatised.

The group’s holding company had earlier through its fourth quarter results reported a full year statutory loss of $224.7 million for the 12 months to the end of June.

A quip aside, Mr Borghetti said all of Virgin Australia Holding’s businesses have shown consistent improvements in their numbers for as much as the last 18 months, and the only part not making a profit, international, had suffered considerably from the flight cancellations and delays caused by volcanic activity affecting Bali flights.

The direct cost impact caused by volcanic ash affecting services to Denpasar was $19 million, and on an underlying EBIT basis, their theoretical exclusion could have improved its results by $40 million over the year.

Mr Borghetti said the $1.1 billion in new capital raising finalised after the end of FY2016 and new equity partners (HNA and Nanshan Group, both from China) meant new opportunities for Virgin Australia, which is gaining direct access to what is Australia’s fastest growing and high spending inbound tourism market.

“This was a year that really finalised our transformation program” he said, putting it in terms of the cost reduction and efficiency programs now in place, and product initiatives that had won Virgin Australia 30 percent of the contract managed government and corporate travel sector by the end of the last financial year.

He pointed out that the sharp underlying improvement in VAH’s profitability as already reported on July 28  had been achieved despite adverse domestic economic sentiment and softness in the second half of the year, compounded by the uncertainties driven by the Federal election.

It was a case of things weren’t as good as might have been hoped for in the economic environment, yet the performance of the group continued to advance.

Mr Borghetti said there had been no discernible improvement in the domestic market since the July 2 election, but actions to reduce capacity, largely driven by the downturn in the resources industry had mitigated some of that damage.

He said the ‘positive momentum in financial performance’ by all VAH businesses was in parallel to a continued focus on reducing costs.

The low cost brand Tigerair Australia had become profitable a year ahead of target (on a margin of 0.5 percent overall compared to a negative margin of 9 percent in FY2015) and Virgin Australia continued to keep its powder dry as to its stated plans for further LCC international route expansion possibly using wide bodied longer range aircraft after the recent transfer to Tiger of some single aisle Bali services previously flown by the full service parent.

Mr Borghetti wouldn’t be drawn on a proposed closer association with Alliance Aviation Services (the large resources industry and F100 operator) but left little doubt that there will be considerably more to say about this in the future.

While no-one mentioned the possibility of selling Virgin Australia’s regional operations to someone like, well, Alliance, no-one should be surprised by anything that happens in the next few years in Australian aviation.

Mr Borghetti said that although no guidance as to FY2017 could be given at this stage, it would be reasonable to conclude from his presentation this morning that everything would get better, unless something unexpected happened to make them worse.

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