TIGERAIR PULLS OUT OF BALI ROUTE AS VIRGIN REPORTS 'SUBDUED' FIRST HALF

VIRGIN Australia (ASX:VAH) has paid down almost half of its debt in the second quarter of FY17 despite subdued domestic conditions forcing it to reduce sectors flown by 5 per cent.

Its international business has also been thrown into turmoil today, as subsidiary Tigerair, which took over Australia-Bali flights from Virgin in late 2015, pulled out of the route permanently today after a dispute with Indonesian regulators.

Virgin's $939.3 million payment reduced its debt by 44.5 per cent and increased financial leverage by 21.1 per cent, the company says in a statement to the ASX this morning, and it finished the quarter with a cash balance of around $1.6 billion - the highest in its history

Underlying profit before tax was $45.9 million, a decline of $27.1 million, while statutory profit after tax was $13.1 million, reflecting the impact of restructuring charges related to the group's Better Business program.

The group expects underlying earnings before interest and tax margin of 3-6 per cent in FY17.

International available seat kilometres are down 8.1 per cent to 3,517 after the company stopped its Phuket and Bali flights in late 2015, but the company kept the revenue from international passengers to a decline of 7.1 per cent.

Virgin subsidiary Tigerair took up the Bali and Phuket routes in place of Virgin and the budget carrier increased its available seat kilometres for domestic and international flights by 24.7 per cent. Tigerair revenue passenger kilometres was up 28.9 per cent while revenue passengers increased 14.8 per cent.

However, the airline found itself in dispute with Indonesian authorities over the flights into Denpasar.

Last night, Tigerair announced it would not go ahead with its Bali services, which were scheduled to resume today due to a regulatory burden applied by the Indonesian government.

"The Indonesian authorities have informed Tigerair that they require an alternative regulatory solution for Tigerair's operations to Bali, says a Tigerair statement.

"This solution would take at least six months to implement and would compromise the airline's ability to offer low-cost airfares to travellers to Bali."

The decision has left customers stranded in Bali and Tigerair says it will find them seats back to Australia on Virgin, or other airlines.

Virgin is trading down 2.33 per cent at $0.21 per share on the ASX at 12.46pm AEDT.

Business News Australia