The Virgin Australia Holdings Ltd (ASX: VAH) share price will be on watch on Friday after the airline operator released a trading update.
What was in the update?
This morning Virgin Australia provided its guidance for FY 2019 based on current economic conditions, capacity and forward booking trends.
According to the release, the airline expects FY 2019 underlying earnings to be down by at least $100 million on last year’s results.
Given that Virgin Australia posted an underlying profit of $64.4 million in FY 2018, this would indicate that it expects to post an underlying loss of at least $35.6 million this year.
Management advised that this poor result reflects the uncertainty of revenue trading conditions in the domestic market and annual fuel and foreign exchange headwinds in excess of $160 million.
It said: “Demand has weakened in both the corporate and leisure sectors, driven by lower levels of consumer and business confidence, consumer spending and the impact of the Federal Election. The corporate sector has been affected by the timing of the Easter holiday period and has been slow to recover due to the impact of the Election.”
The company is attempting to combat this and has initiated a network review and made some immediate adjustments to capacity and the frequency of services to better align with demand conditions.
The company’s CEO and managing director, Paul Scurrah, appeared to be disappointed with the performance of the business but was optimistic on its long term prospects.
He said: “While we have continued to grow revenue, this announcement shows that our business needs to become more resilient to challenges such as weaker demand, high fuel prices and the foreign exchange environment.”
Before adding: “There is a lot of work being done to develop our new strategy that will help position the Group for long-term success. In the meantime, we are focused on short-term improvements including capacity and network reductions to ensure we are better meeting current demand from the corporate and leisure sectors.”
This is quite the contrast to Qantas Airways Limited (ASX: QAN) which looks set to deliver another bumper profit result in August.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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 Scott Phillips.