John Borghetti’s transformation of Virgin Australia is hitting some turbulence.
Shares in the airline dropped as much as 6.6 per cent after the airline said it expects to report a net loss of as much as $110 million because of a “difficult economic and competitive environment”, restructuring charges and the carbon tax.
At 1330 AEST Virgin shares were down 2 cents, or 4.4 per cent, to 43.5 cents, after falling as low as 42.5 cents after the company forecast a loss in the 12 months to June 30 of $95-$110 million.
In an ASX statement Virgin says in the 12 months to June 30 there has been a $100 million cost charge. This charge includes costs associated with a new ticketing and reservation system, transaction costs related to the acquisition of Skywest Airlines, the purchase of 60 per cent of Tiger Airways as well as asset writedowns.
The pre-tax loss and costs associated with Virgin’s Skywest business are estimated to be between $30-$50 million.
Pre-tax costs related to the carbon tax are between $45-50 million. They were unable to be recovered because of “weak economic conditions and the competitive environment”, says Virgin.
Borghetti has sought to transform Virgin from a low budget airline to a full service carrier in an effort to erode rival Qantas Airways' 65 per cent market share of the domestic Australian market. In addition the Virgin chief has sought to challenge Qantas internationally via alliances with Singapore Airlines, Air New Zealand and Etihad Airways.
“Today’s update is disappointing and notwithstanding a challenging environment we have made significant progress,” said the Virgin chief executive said in the ASX statement. “We now have the right platform in the Australian market to generate substantial earnings benefits.”
In June, Virgin said its yield – a measure of ticket prices – increased after its proportion of seats filled rose to 74.4 per cent from 69.3 per cent in May.