The Virgin Australia Holdings Ltd (ASX: VAH) share price has taken off on Wednesday following the release of the airline operator's half year results.
In morning trade the Virgin Australia share price is up over 10% to 21.5 cents.
How did Virgin Australia perform in the first half?
In the first half the company posted group revenue of $3,071 million, which was an increase of 10% on the prior corresponding period and a record for the airline.
Things were even better further down the income statement, with group underlying half year profit before tax rising 37.1% to $112.3 million. This was the strongest profit result in over a decade and was achieved despite $88.2 million fuel and foreign exchange headwinds.
Group statutory profit after tax came in at $73.8 million for the half, up 6.3% on the prior corresponding period. Its statutory result includes $24.6 million in net restructure costs associated with fleet simplification under the Better Business program.
The company used its improving financial performance to strengthen its balance sheet. Management reduced its debt by $287 million or 6.8%. This left it with financial leverage of 4.1x, an 8.9% improvement.
What drove the strong result?
Management advised that the result was driven by a "record performance in the Virgin Australia Domestic business, supported by stable market conditions, disciplined capacity management, continued effective cost control under the Better Business Program and stronger passenger Yield."
In addition to this, Virgin Australia International made solid improvements as management continues to position the business for long-term growth. It reported RASK improvement, higher Yield, and an increase in passenger numbers.
The Tigerair business performed better despite fuel and foreign exchange headwinds. Although it recorded a segment EBIT of negative $8 million, this was largely down to the accelerated depreciation costs from Tigerair's fleet transition from A320 aircraft to a Boeing B737 fleet.
And finally the Velocity Frequent Flyer business continued its positive run. It added 347,265 new memberships during the period, helping drive a 9.2% increase in segment revenue to $208.9 million and a 5% lift in segment EBIT to $59 million.
Should you invest?
I thought that this was a strong result from Virgin Australia and so I can't say I'm surprised to see its shares soar today.
However, while I feel like it could be a decent option for investors, I would sooner buy Qantas Airways Limited (ASX: QAN) shares. Virgin Australia's strong half year result gives me increased confidence to believe that Qantas is well-positioned to deliver a bumper profit result in FY 2019.
Incidentally, the Air New Zealand Limited (ASX: AIZ) share price has missed out on the party today and is down almost 1% in late morning trade.
