risk assets and u s dollar sold off but it is not a prelude to a major financial crisis 1837372016

Closes routes to Phuket and deploys Tigerair flights to focus on more profitable routes

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By :  ,  Financial Analyst

Virgin Australia Holdings Ltd (ASX: VAH) announced its Full Year results with a clear target to turn around its international business and return it to profitability by the end of FY17.

The airline reported an underlying loss in its international division of AU$68.9 million in FY15, compared with a AU$46 million loss in the prior year, despite a turnaround in its domestic business during the year thanks to more favourable trading conditions. Virgin's domestic division reported an increase in underlying earnings before interest and tax to AU$111.1 million, up from a AU$99 million loss the prior year. Virgin's return from fares improved by 5.2 per cent with the airline saying it expected to achieve further yield growth in the current financial year.

Virgin announced it would replace its flights to Bali with Tigerair flights on some routes including Perth, Melbourne and Adelaide and withdraw from the Perth-Phuket route. This is the first time Virgin has used its budget carrier Tigerair internationally, according to Sky News. Virgin will continue to fly to Bali from Brisbane, Sydney and Port Hedland.

Chief executive John Borghetti told AAP "I think it is fair to say this isn't a one-off Tiger solution, it's part of a more intricate plan", indicating that more Tigerair flights would be added. Tigerair previously had a poor reputation in Australia when its fleet was grounded due to safety issues back in 2011. Virgin bought the airline for $1 in October 2014 and has since turned around the airline improving its customer service and flight performance, with the company on track to post its first profit in 2016.

The airline also announced it will use all economy-class 737-800 aircraft, instead of the A320s with shorter ranges which are currently part of the Tigerair fleet. Virgin will also increase flights to New Zealand, Fiji and the Solomon Islands to meet customer demand.

The company reported that it will increases its cost-cutting measures from AU$1 billion to AU$1.2 billion by the end of the 2016-17 financial year, with capital expenditure savings being made by restructuring its order book and deferring the delivery of 17 Boeing 737-800 aircraft planned and converting these into orders for the new, more fuel efficient MAX line of 737s. "We have the ability to vary [capacity] by driving asset utilisation up or down," Mr Narayan said. "We don't believe it is constrained by our fleet position at this point in time. We have been adjusting to what market demand is." reported The Australian Financial Review.





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