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Virgin Australia Loss Smaller Than Estimated on Better Fares

Aug. 30 (Bloomberg) -- Virgin Australia Holdings Ltd., the country’s second-largest airline, had a narrower-than-estimated annual loss as the introduction of business-class services and a new booking system across its network helped support fares.

The net loss was A$98 million ($87 million) in the year ended June, the Brisbane-based company said today in a regulatory statement. That was narrower than the A$102 million average of five analyst estimates compiled by Bloomberg, and compares with a A$23 million profit a year earlier.

Yield, a measure of fares per kilometer traveled, grew in the three months through June as a new ticketing system allowed the booking of more high-price last-minute fares, Virgin said. The carrier booked about A$105 million in one-time costs as it took over smaller rivals, installed business-class seats and started the ticketing system to take on Qantas Airways Ltd.’s 65 percent share of the Australian market.

“There is already evidence of revenue conditions improving,” Simon Mitchell, an analyst at UBS AG in Sydney, wrote in a note to clients on Aug. 6. Sales should “expand at a far greater pace than costs” in the year ending June 2014, he said.

Virgin fell 3.7 percent to 39 Australian cents at the close of trade in Sydney, its biggest drop in three weeks. The stock has declined 7.1 percent this year, compared with a 10 percent gain in the S&P/ASX 200 index.

Last-Minute Bookings

“We are seeing yield growth over the last three months; we’re seeing loads return as well,” Sankar Narayan, chief financial officer, said in a phone interview today, referring to measures of the proportion of seats filled on flights. “People can now make last-minute bookings, and last-minute bookings are a primary driver of yield.”

Group yield grew “strongly” in the last three months of the year and fell over the 12-month period to 11.08 Australian cents per kilometer from 11.09 cents the previous year, according to the statement today.

Backed by major shareholders Singapore Airlines Ltd., Air New Zealand Ltd., and Etihad Airways PJSC, the airline has bought rural carrier Skywest Airlines Ltd. and a 60 percent stake in Tiger Airways Holdings Ltd.’s loss-making local unit to compete with Qantas.

The airline took A$90 million of unsecured loans from the three shareholders to improve liquidity, it said today. Narayan said the terms attached to the loans were similar to each other and didn’t disclose the interest rates.

Capacity Growth

Last year’s capacity growth of 6.3 percent will slow to between 3 percent and 4 percent in the six months ending December, the company said Aug. 5, a shift that usually lifts ticket prices.

Excluding tax and one-time items, Virgin lost A$35 million, compared with the A$47 million loss average of nine analyst estimates. The company cut its full-year earnings forecast twice over the course of the year and said Aug. 5 that its net loss would be in the range of A$95 million to A$110 million, or A$30 million to A$50 million before tax and one-time items.

Qantas shares surged the most in almost seven years yesterday after saying pretax profit excluding one-time items doubled from a year earlier, even after earnings before interest and tax dropped 21 percent on its mainline domestic network and by 32 percent at the Jetstar budget carrier. The company posted a net income of A$5 million, compared with a loss of A$245 million in the previous 12 months.

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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