VIRGIN Blue has shown that it has largely overcome the worst period in its 10-year history, after posting a better-than-expected profit in the first half of the year and declaring that its fledgling long-haul offshoot, V Australia, is close to breaking even.
But it has tempered investors' hopes of a quick and sustained recovery in demand for travel by warning that the second-half earnings will not be as strong as the first.
It has also continued to leave investors guessing about who will fill the shoes of its departing chief executive, Brett Godfrey. The board has short-listed three candidates and expects to make an announcement on the co-founder's replacement within weeks.
The airline reported a net profit of $62.5 million for the six months to December 31, compared with a loss of $101 million for the same period in 2008. It did not pay an interim dividend, despite the lift in earnings.
Giving investors heart, Virgin Blue said it was confident of grabbing almost a third of the federal government's air travel budget within the next two years, after it was short-listed for the $500-million-a-year tender this week. Qantas has maintained its grip on the tender for years.
Virgin Blue also confirmed it had signed an in-principle agreement to buy up to 50 Boeing 737-900 aircraft between 2011 and 2017, largely for its domestic network. The $4 billion deal was flagged in September.
V Australia posted a loss of $39 million in the half, but Mr Godfrey said he was confident it would become profitable by about August - 18 months after it was launched.
''We see light at the end of the tunnel for V Australia,'' Mr Godfrey said of V Australia, whose aircraft are now running at more than 80 per cent full. ''Yields, however, are still weak.''
Despite the solid result, he emphasised that the return to profitability was the result of ''cost containment, not revenue improvement'', after the airline endured probably the ''toughest period in aviation's history''. Virgin Blue laid off 318 staff last year, although that was about 100 fewer than initially planned.
Echoing recent comments from Qantas, Mr Godfrey cautioned that the operating environment was still uncertain and that the underlying profit of $76 million in the first half - traditionally the busiest period - would not be repeated in the latter six months of the financial year.
He said he was hesitant about calling a solid upturn in demand because of the volatility and the likelihood of tougher competition from Jetstar and Tiger Airways in April and May.
Virgin Blue shares fell 1¢ to 61¢.
VIRGIN BLUE
Profit $62 million NA
EPS 3.3¢ NA
Sales $1.5 billion +164%
Dividend nilNA
