The Virgin Australia Holdings Ltd (ASX: VAH) share price has dropped 5.1% in lunchtime trading to 46.5 cents, despite the airline reporting an underlying profit before tax of $81.5 million for the first half the 2016 financial year (FY16).

It’s a significant jump over last year’s $10.2 million underlying profit before tax, so why aren’t investors enthusiastic about today’s result?

Here’s a brief summary of the results…

  1. Revenues of $2.7 billion, up 11.8% over the first half of 2015 financial year (1H FY15)
  2. Underlying earnings before interest and tax (EBIT) of $161.4 million, compared to $54.3 million in 1H FY15
  3. Statutory profit after tax of $62.5 million, the strongest since the first half of 2010
  4. Operating cash flow of $10.2 million, compared to $64.8 million in 1H FY15
  5. Return on invested capital (ROIC) of 8% compared to 2.9% for the 12 months ended December 2014
  6. No dividend declared.

Virgin also reported strong growth in many of its metrics, including subsidiary TigerAir Australia achieving its highest half-year underlying EBIT of $13.9 million since it commenced operations.

The airline says it is on track to exceed cumulative cost savings target of $1.7 billion by the end of FY17 and CEO John Borghetti says Virgin is on track to deliver a profit for the 2016 financial year and deliver a return on invested capital (ROIC) in line with its cost of capital.

That last section is highly important. If a business can’t generate returns higher than its cost of capital, it will go bankrupt fast.

A number of external factors have also contributed to Virgin’s improved performance. Falling oil prices saved the airline $53 million in expenses, while the end of a domestic price war with rival Qantas Airways Limited (ASX: QAN) has allowed both airlines to prosper.

But despite all the positive news, Virgin still faces a multitude of issues. Its international business is still making a loss, the company carries more than $3 billion of debt on its books, and has committed to spending an additional $4.45 billion on aircraft and aeronautic-related assets, which is not recognised on its books. Let’s also not forget the weak cash flow in this half.

Foolish takeaway

With around 75% of the shares owned by Air N.Z. FPO NZ (ASX: AIZ) (Air New Zealand), Etihad and Singapore Airlines and a further 10% by Sir Richard Branson’s Virgin Group, Virgin shares aren’t exactly very liquid. It could also be said that their holdings are strategic rather than for investment gains, so there seems little reason for any retail investors to hold shares in Virgin.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.