Virgin Australia Holdings Ltd (ASX: VAH) has reported a statutory loss after tax for the 2016 financial year (FY16) of $224.7 million – its fourth consecutive annual loss.
That came after the airline reported a fourth quarter loss of $228.4 million, impacted by efficiency expenses and its Better Business program. The company expects to save around $300 million annually from its Better Business program.
Virgin reported an underlying profit before tax of $41 million for FY16 – consistent with its previous guidance – and a $90 million improvement on the loss of the previous financial year.
Virgin had reported an underlying loss before tax of $49 million in 2015 – which was also an improvement on the underlying loss of $211.7 before tax in 2014.
While earnings appear to be moving in the right direction, the consistent losses suggest that Virgin is still struggling to cope with external factors impacting its business – unlike rival Qantas Airways Limited (ASX: QAN) – which has already returned to profitability as we noted earlier this week.
Both airlines are currently struggling in a 'challenging operating environment'. Virgin slashed its capacity by 5.1% in the June quarter thanks to ongoing weakness in consumer demand and the resources downturn.
That also has implications for fly-in, fly-out, contract and charter operator Alliance Aviation Services Ltd (ASX: AQZ). The airline reported an underlying net profit of $4.1 million for the first six months of FY2016, but appears unlikely to replicate that in the second half.
Foolish takeaway
Virgin's result shows how difficult it can be to make an airline consistently profitable. All it would take is oil prices to spike and both Virgin and Qantas would face rapidly declining earnings.
