The Virgin Australia Holdings Limited (ASX: VAH) share price rose 7% this morning on the back of reporting its half-year result to 31 December 2018.
As is suggested in the name, Virgin Australia Holdings Limited is a holding company for Virgin Australia International Airlines, Virgin Australia Domestic Airlines and also Tigerair Australia. Tigerair was acquired by Virgin in 2015.
Why The Jump In Price?
The Virgin Australia Group said they reported their strongest underlying half-year profit since the 2008 financial year. Virgin reported an underlying profit before tax of $112.3 million which is an increase of 31% compared to the same corresponding period.
The statutory profit after tax of $73.8 million is an improvement of $69.4 million compared to the first half of FY18. Profits/earnings per share (EPS) was also reported at 0.6 cents, an increase from a loss of 0.1 cents.
Management Commentary
Virgin Australia Group CEO John Borghetti said: “Today’s results continue to demonstrate the ongoing success of our cost transformation program which is improving cash flow and reducing financial leverage to deliver sustainable profitability.”
“We’ve built a strong competitive domestic operation under the Virgin Australia Domestic brand which recorded an all-time high segment earnings before interest and tax (EBIT) and is continuing to attract more customers and deliver two-thirds of our revenue.”
Domestic Business Growth
It is the Virgin Australia Domestic business that is behind the growth reported this period. The segment delivered a record performance reporting 10.3% revenue growth. Management claims this result demonstrates the success of their investment in improving the Virgin Australia Domestic brand.
This success has also been assisted by an increase in domestic tourism due to the falling Australian dollar over the past year.
FY19 Guidance
The Virgin Australia Group has stated that based on current market conditions and forward domestic bookings, group revenue in 3Q19 is expected to grow by 7% on the prior corresponding quarter. It is interesting to note, however, that Virgin also states it is difficult to provide more specific FY19 guidance due to market uncertainty.
Is Virgin Australia A Buy?
With the positive news from today’s market release, the Virgin share price rose 7% this morning. With the Australian dollar forecasted to stay low for the remainder of 2019, the Virgin Domestic business could benefit from this.
But on the back of this, I do not believe Virgin Australia is a buy. Qantas Airways Limited (ASX: QAN) may be worth looking into if you do want to invest in an airline company because at least it pays a dividend, unlike Virgin Australia.
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