Fuel Costs and Tariffs Pose Challenges Despite Virgin Australia’s Strong FY25 Results

Strong Financial Performance

Virgin Australia Holdings Limited has delivered a compelling financial performance for the fiscal year ended June 30, 2025. The airline reported a pro forma underlying net profit after tax (NPAT) of $331 million, marking a 27.8% increase over the previous year and meeting or exceeding the forecasts set out in its IPO prospectus. This growth was driven by solid earnings across both its core Airlines segment and its Velocity loyalty program.

Despite a 12.3% decline in statutory NPAT to $479 million, primarily due to one-off IPO and Qatar Airways transaction costs, the underlying results paint a picture of operational strength and strategic progress. The pro forma underlying earnings before interest and tax (EBIT) rose by nearly 30% to $650 million, with the EBIT margin expanding to 11.2%, up 1.8 percentage points from FY24.

Operational and Customer Experience Gains

Operational metrics showed marked improvement, with on-time departures climbing to 76.8%, a 7.2 percentage point increase year-on-year, and a completion rate of 98.4%. Notably, Virgin Australia’s second-half on-time performance of 82.1% was the highest among major Australian domestic carriers. Customer satisfaction also strengthened, with the Strategic Net Promoter Score rising by four points to 27, reflecting the airline’s commitment to enhancing guest experiences.

These operational gains are complemented by recognition from Skytrax, naming Virgin Australia the World’s Best Cabin Crew for the seventh consecutive year, alongside awards for Best Regional Airline and Best Airline Staff Service in the Australia/Pacific region.

Transformation Program and Segment Growth

The ongoing Transformation Program has been a key driver, delivering over $450 million in gross benefits during FY25. This initiative, alongside fuel cost savings, helped offset inflationary pressures and contributed to margin expansion. The Airlines segment saw a 36.4% increase in underlying EBIT to $535 million, supported by strong load factors, ancillary revenue growth, and improved passenger mix. Meanwhile, the Velocity loyalty program achieved double-digit revenue growth and a 12% increase in active members, underscoring its strategic importance.

Fleet and Balance Sheet Outlook

Virgin Australia’s fleet stood at 104 aircraft at year-end, with plans to expand to 107 by June 2026, including the addition of 13 new Boeing 737-8 Max and four Embraer E190-E2 aircraft. The fleet renewal strategy also involves phasing out older Fokker F100 and Airbus A320 aircraft in favor of more efficient models. The balance sheet remains solid, with net debt at $1.2 billion, representing a conservative leverage ratio of 1.1 times pro forma underlying EBITDA, and liquidity of $1.4 billion.

FY26 Outlook and Market Conditions

Looking ahead, Virgin Australia reaffirms its FY26 guidance, expecting continued revenue and profit growth driven by demand aligned with GDP growth, fleet expansion, and further benefits from the Transformation Program. The airline is managing fuel price volatility through a robust hedging program covering a significant portion of its exposure through December 2025. Capital expenditure is forecast at approximately $1.1 billion, primarily for fleet additions and maintenance, funded by operating cash flow and modest debt increases.

However, the company acknowledges potential cost pressures from recent U.S. tariff announcements and ongoing inflation in labour and airport fees. Virgin Australia also notes the uncertain longer-term impact of regulatory changes on credit card fees but does not anticipate material adverse effects in FY26.