Virgin Australia reveals AU$53.8m software cost

Virgin Australia revealed today that it snapped up AU$53.8 million of capitalised software amid the acquisition of assets costing AU$73.7 million during the financial year ending 2014.
Written by Leon Spencer, Contributor

Of assets costing AU$73.7 million that were acquired by Virgin Australia over the financial year ending June 2014, AU$53.8 million was in capitalised software, the airline revealed today.

Virgin Australia Group released its annual financial report (PDF) today, reporting a total statutory net after tax loss of AU$355.6 million for the period, more than tripling its loss in 2013 of AU$98.1 million.

However, the airline reported a rise of AU$286.3 million from last year in total revenue and income to AU$4.3 billion.

In all, the company said its commitments payable for the acquisition of property, plant, and equipment, including aircraft and aeronautic-related assets, contracted for as of the reporting date but not recognised as liabilities total AU$3.38 billion — just over last year's AU$3.35 billion.

The company reported an underlying loss before tax of AU$211.7 million, which it said was in line with its market expectations.

The airline reported a total cash position of AU$783.8 million, up from AU$580.5 million at the end of June, with gross debt reduced by approximately AU$200 million in the second half of the financial year.

Over the course of the year, the company spent AU$117.3 million on restructuring costs, and implemented a number of major cost-reduction strategies, including programs to reduce overall employment and procurement costs, along with the introduction of its Fuel Management System, aimed at netting a 2 percent fuel efficiency saving by the end of FY15.

One of the areas the company has been focusing heavily on is its Velocity Frequent Flyer program membership, which now stands at 4.5 million, with FY14 representing the highest member acquisition in the program's history and a material increase in member engagement.

Virgin Australia also announced today that it had entered into a major transaction that sees one of Asia Pacific's largest investment firms, fund manager Affinity Equity Partners, purchase a 35 percent minority stake in the Velocity Frequent Flyer program, valuing the program at an enterprise value of AU$960 million.

Looking forward, Virgin Australia Group CEO John Borghotti said that the Velocity Frequent Flyer will be one of the company's key growth businesses, with the announcement today of the new strategic transaction being just the beginning of the business' growth strategy.

"Over the next three years, we plan to grow membership to more than 7 million, further diversify Velocity's partner mix, increase partner numbers, and strengthen member engagement in both points earned and points redeemed," he said.

The company also invested in the redesign of its Virgin Australia website, along with the completion of major lounge expansion works and the launch of complimentary food on selected services contributed to enhanced customer experience during the year.

Over the 2014 financial year, Virgin Australia implemented a number of tech-driven initiatives, including the introduction in July last year of its Velocity Frequent Flyer Global Wallet, a prepaid travel money card offering points rewards.

In September, the company launched its new wireless in-flight entertainment system, extending the wireless offering across its domestic and short-haul international network, with over 37 aircraft fitted out with the technology.

In June this year, Virgin Australia's Velocity program became "the first" loyalty program in Australia to partner with Australia Post, giving members the ability to earn points on everyday bill payments and other online transactions through Australia Post's MyPost Digital Mailbox service.

Borghetti said the company also plans to optimise the recently adopted PROS revenue management system, which employs flight data for analysis and insight, to help drive incremental revenue opportunities.

During FY14, the company also continued with its implementation of the SaberSonic customer sales and service platform, with Borghotti saying that the system has enabled the company access to new markets globally.

"As a result of the important alliances we have forged and the implementation of SabreSonic, we have developed a comprehensive global virtual network and accessed growth markets around the world," he said. "In just a few years, the business has grown from offering around 150 destinations to more than 460 destinations, and increased interline and code-share traffic by more than 300 percent."

Borghotti, however, conceded that the FY14 had been a tough period through which to operate in the Australia airline industry.

"The 2014 financial year has seen one of the most difficult operating environments in the history of Australian aviation," said Borghotti. "While the Virgin Australia Group performed will be attracting high-yielding passengers and containing cost growth over the full year, underlying revenue performance was impacted by the challenging operating conditions."

Just yesterday, Australia's national carrier Qantas announced a statutory after tax loss of AU$2.8 billion for the financial year ending June, much of which was driven by a aircraft fleet value writedown and restructuring expenses, including the termination of around 4,000 jobs.

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