Virgin Australia delivers strong profit growth despite rising cost pressures

By Julie Zhu and Sneha Kumar

Feb 27 (Reuters) - ‌Virgin Australia reported strong ​first-half profit ​growth on Friday despite rising cost pressures, as the country's No. 2 airline remains disciplined about adding capacity in a domestic market dominated by rival Qantas Airways.

Virgin said it planned to ‌add about 2% to 3% capacity in the second half ending June 30, down from ⁠4% in the first half, while Qantas on Thursday forecast it would maintain domestic capacity growth at its main airline and budget ‌arm Jetstar at 4% in the ‌second half.

"This year, we're growing more in line with GDP, and (Qantas) are growing faster than us," Virgin CEO Dave Emerson said on an earnings call. "But if you look at over a two-year basis, I think ​our growth rates would be quite similar."

Virgin, which returned to the stock market last June after being rescued from voluntary administration by U.S. private equity group Bain Capital during the pandemic, posted a 21% rise in ⁠first-half underlying net profit after tax to A$278.7 million ($198.07 million) as margins expanded.

Revenue grew by 9.3% and revenue per available seat kilometre (RASK) by 6.4%, ​which compared to revenue growth of 6.3% and average RASK growth of 3.2% reported by Qantas across its domestic and international operations.

Citi analyst Samuel Seow said in a note ​that it appeared Virgin was growing more slowly than peers ‌to achieve above-industry pricing.

"This trend appears to continue into 2H26, with higher RASKs and lower capacity than competitors," he said. "However, this isn't impacting profitability with guidance largely in line/modestly ⁠ahead."

Virgin Chief Financial Officer Race Strauss said he was confident the airline could continue to boost margins in the second half due to strong travel demand and a cost-cutting drive, even though it faced headwinds from inflation and higher maintenance, labour ⁠and airport charges.

Virgin reported a 30% rise in maintenance costs in the first half, driven by supply-chain pressures and an increase in ​one-time lease provisions for some aircraft that will not recur in the second half.

"Obviously with the delay in the new aircraft (deliveries), that is pushing all airlines around the world to use older aircraft, which creates more maintenance demand," Strauss said.

Airport charges increased ‌14% in the first half, reflecting widespread capital investment by Australian airports.

"This is an industry-wide issue, and is set to continue into the second half and beyond, ‌as monopoly airports continue to invest a significant amount of money in capital works, which drives up costs for airlines," Strauss ⁠said.

Shares of Virgin Australia were nearly flat in ‌afternoon trading, while Qantas shares ​were up 2.2% following a 9% decline after its results on Thursday.

($1 = 1.4071 Australian dollars)

(Reporting by Julie Zhu in Hong Kong, Sneha Kumar and Nikita Maria Jino in Bengaluru; Editing by ‌Jamie Freed)

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