What: This morning listed airline company Virgin Australia Holdings Ltd (ASX: VAH) posted a net loss of $355.6 million. Its underlying loss – which accounts for impairments on the Bali route and restructuring costs – totalled $211.7 million, in line with market expectations. The group's budget airline, Tigerair Australia, reported a $46 million loss and is not expected to become profitable until 2017.
However the big news from today's announcement was the sale of a 35% stake in its frequent-flier program, Velocity, to US private equity firm Affinity Equity Partners.
So what: Virgin's loss and part-sale of Velocity contrasts with that of bigger Australian rival Qantas Airways Limited (ASX: QAN) which yesterday announced it would retain 100% ownership of its Frequent Flier program.
The $336 million in cash generated from the sale of the stake in Velocity, expected to be finalised by year's end, will add to the $541 million in unrestricted cash the group currently holds, gearing will also fall around 8%.
Now what: In addition to expanding the frequent flier program (which goes a long way in helping the group increase brand loyalty and steal market share from Qantas), Virgin has targeted charter and freight services as key growth areas and will hope to bring Tigerair to profitability in the near future.
Virgin's given outlook was uncertain: "Given the uncertain economic environment we are unable to provide guidance for the 2015 financial year at this time… Virgin Australia will not be providing guidance on capacity growth going forward."
Buy, hold or sell?
I can't see any reason why long-term investors would want to get involved in the Australian airline battle. In my opinion, it's akin to investing in a mining company who digs up one commodity and sells its product to a market already in a supply glut. It wouldn't surprise me if Virgin 'wins' the battle against its larger rival, which has got everything to lose.
However for a company with no dividend and no real forward looking guidance, I believe it's better left for day traders.
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