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Virgin Australia's (ASX: VAH) financial results nosedived in FY18 due to major accounting adjustments, but underlying profit was the highest its been in a decade.
The $653.3 million loss was largely driven by approximately $451.9 million in deferred tax assets that have been de-recognised.
Virgin Australia CEO John Borghetti emphasises the adjustment is non-cash and business fundamentals are strong, but a prudent approach was required as new initiatives were undertaken and fuel prices rose.
"We are confident in the performance of the Group's underlying business and that long-term benefits from our growth plans will be delivered," says Borghetti, who will be stepping down from the role in 2020.
"These accounting adjustments have been made as the Group leverages its transformed product to pursue initiatives in the Asian aviation and loyalty markets.
Importantly, the deferred tax assets that have been derecognised are still up Virgin Australia's sleeve to offset future tax liabilities.
In contrast to the airline's statutory performance, underlying profit before tax took off to reach $109.6 million compared to a loss of $3.7 million in FY17. The result was bolstered by a 2.8 per cent increase in passenger numbers.
"The Group has delivered its strongest Underlying Profit before Tax in 10 years. This outcome was driven by record earnings in our core domestic business, which represents two thirds of our revenue base, and supported by significant improvements in our cash and leverage results," says Borghetti.
"We have been well-placed to grow our share of the domestic market because of the transformation of our customer offering. Our investment in our product ensures that our guests are getting an outstanding experience and great value when they fly with us.
"Other factors driving our domestic performance included growth in the corporate and leisure markets, the strength of our ancillary products, improved fleet utilisation, the exit of loss-making routes and disciplined capacity management."
Borghetti expects the business is in a good position to achieve sustainable profitability in the future, and for the current quarter revenue is forecast to be up by at least 7 per cent.
Virgin Australia's high-flying operational result comes amid a positive reporting season for ASX-listed companies in the travel sector, including Flight Centre (ASX: FLT), Corporate Travel Management (ASX: CTD), Helloworld (ASX: HLO) and Webjet (ASX: WEB).
Last week Virgin's main competitor Qantas (ASX: QAN) announced a 14 per cent uptick in underlying profit before tax to reach $1.6 billion, along with a $332 million share buyback scheme.
In today's release, Virgin claimed it was outperforming Qantas on the punctuality of flights.
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