Passengers carried are expected to hit 20.8m in FY25, up from 19.2m in FY24. Better still, Virgin reckons its three core customer segments generate fares 20% to 50% higher than those paid by budget travellers.
Jet fuel is a cost to watch, as are oil prices. Virgin spent $1.1b on fuel in 2024 but it hedges to cushion the impact of oil price swings. A US$10 change in Brent can shift FY25 net profit by $2m down or $9m up.
CEO Dave Emerson is focused on margin uplift. Virgin expects $950m in benefits from its Transformation Program by end-2026. Half is expected from revenue initiatives, 45% from cost savings and 5% from Velocity. Underlying net profit margin is expected to rise to 5.7% in FY25 from 4.8% in FY24.
Velocity is a high margin and cash generating business: its EBIT margin was 28.2% in FY24. The beauty of Velocity is that it receives cash upfront when points are issued, allowing it to generate investment revenue on that cash. It contributed 7% of underlying revenue and 23% of underlying EBIT in FY24.
Competition is an issue to watch. Virgin Australia has signalled it wants rational fare pricing. That’s code for it being happy to take the middle market while Qantas takes the top end and Jetstar grabs the budget end.
It‘s not clear Qantas is listening: it recently shut down its Jetstar Asia subsidiary, redeploying aircraft to the domestic market. But Qantas would benefit from avoiding a price war given it needs a major fleet renewal.
