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Virgin Blue profit rises despite high oil price

Passenger jets from Australian budget airline Virgin Blue are prepared for take-off at Sydney Airport yesterday. PHOTO: AFP

Australian budget airline Virgin Blue posted a 47 percent rise in annual net profit yesterday as it continued to take market share from Qantas, but the carrier warned it was exposed to decade-high jet fuel prices.

In its first annual results since becoming a listed company last December, the airline said net profit for the year to March rose to A$158.5 million (US$110 million), driven by a 49 percent rise in revenues of A$1.36 billion.

The result beat Virgin Blue Holdings' own estimate of A$150 million but was slightly below the consensus of analyst forecasts for A$160 million.

Virgin Blue, 45 percent owned by Australian logistics group Patrick Corp and 25 percent owned by Richard Branson's Virgin Group, quickly captured the market's attention when it launched here four years ago, offering a fresh-faced, affordable and service-oriented alternative.

The airline has since taken more than 33 percent of the domestic market and used that success to make its initial public offering on the Australian Stock Exchange.

Virgin Blue last week said it would follow Qantas and Air New Zealand in adding a fuel surcharge to ticket prices.

Chief executive Brett Godfrey said that if the levy did not lead to a significant fall in passenger demand, it should result in oil price rises being "neutral" for the group.

"Jet fuel has not come down in the last 12 months in terms of what we're picking up. Jet fuel hasn't been this high in a decade," Godfrey said.

"In our view there is nothing out there to suggest that aviation fuel is going to come down," he said, adding that prices had surged 28 percent over the past 12 months.

He said the airline was "comfortably" hedged at below US$30 a barrel for the first six months of the next financial year but hedging protection is lower in the second half.

"We are definitely exposed in the second half," said Godfrey.

Crowe said this was not too much of a concern at this stage.

"I think what's more important is their overall cost base, not just one part of it, and that continues to fall so I'm not too concerned about that," Crowe said. "In the leisure aviation market the lower cost operator has the advantage."

Godfrey said Virgin Blue had the lowest cost base in Australia and the airline was focused on cutting it further.

Virgin Blue also said competition would increase thanks to Qantas no-frills off-shoot JetStar, which begins operations next week, but it would press on with expanding domestic and international services.

"JetStar only operates in about 20 percent of Virgin Blue's market so the main source of competition is between Virgin Bue and Qantas domestic," said Crowe, adding: "I think Virgin Blue have a very, very competitive product."
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