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Virgin Australia's NZ operations report $31 mln profit following accounting changes

Monday 8th December 2014

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Virgin Australia’s earnings performance on the highly competitive trans Tasman route has improved from loss making to a profit as a result of accounting policy changes and other benefits from its alliance with Air New Zealand.

The Australian airline's New Zealand operations posted a $31 million profit in the year ending June 30, compared to a loss of $9 million the year before, according to accounts for Virgin Australia Airlines (NZ) Ltd filed with the Companies Office. Revenue rose $1.86 million to $274 million. Most of Virgin New Zealand’s revenue comes from operating aircraft on trans Tasman routes for its Australian parent.

The bottom line earnings reflect changes to Virgin’s accounting policies after two of its largest shareholders, Air New Zealand and Singapore Airlines, began recording a part of the profits or losses from Virgin in their own accounts.  In October, the parent company,Virgin Australia, reported an underlying loss before tax of A$45 million for the first quarter of the 2015 financial year, historically a seasonally weaker period for the airline. It was an 18.3 percent improvement over the quarter ending Sept. 30 the previous year.

The trans Tasman market is dominated by two major alliances, Air New Zealand-Virgin and Qantas-Emirates. Figures presented to the Australian competition regulator, the Australian Competition and Consumer Commission, last year showed Air NZ-Virgin had a joint share of 57 percent of the market compared to 39 percent for Qantas-Emirates. Qantas-Emirates had lost 3.3 percent market share in the previous four year period.

Market regulators last year gave approval to extend the Air New Zealand-Virgin Alliance for a further five years, with some conditions remaining around maintaining competition on certain key routes.

New Zealand is Australia’s largest international aviation market with 5.73 million passengers flying between the two countries in 2013.

Virgin subsidiary, Pacific Blue NZ, stopped flying domestic routes within New Zealand in 2010 after tough competition and tighter market conditions left it with a near-$20 million loss. That left Air New Zealand and Qantas subsidiary, Jetstar, to compete against each other on the main trunk routes.

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