Virgin Australia profits as mainline domestic airfares surge Aviation Jamie Freed Virgin Australia's decision to limit the number of flights in the domestic market at a time of weak demand and its ability to pick up more business traffic has paid off. 
The carrier charged an average of 9.1per cent more for its mainline domestic fares and 12per cent more for fares at low-cost arm Tigerair Australia in the first half, helping to drive an eight-fold rise in first-half underlying profit to $81.5million. Both Virgin and rival Qantas have kept seating capacity at relatively flat levels since   May 2014, when the pair ended a financially damaging capacity war that left both airlines in the red.
Virgin chief executive John Borghetti said an increased mix of business and government travellers had boosted average fares in the first half, while Tigerair had benefited from product improvements at Melbourne Airport and its better on-time performance than rival Jetstar.
"Certainly capacity growth has been slower," he said.
"But we have to be careful to not jump to the conclusion that airfares are going through the roof.
"When we started this journey five years ago [to take Virgin upmarket] we said we'd bring competition and airfares would go down. Fares today are cheaper than they were five years ago."
However, Mr Borghetti said weak consumer confidence combined with Virgin picking up more corporate and government traffic, meant passengers were booking their flights a closer to the date of travel. That, in turn, affected the timing of the airline's cashflows, with Virgin reporting a $133million cash outflow in the first half.
"I've seen this many times [over my career]," said Mr Borghetti, who earlier worked more than 30 years at rival Qantas Airways.
"Typically speaking, whenever sentiment is low, people don't commit as early. It is typical human behaviour in anything."
Virgin also benefited from a lower oil price during the half, although the majority of the gains were eroded by a weaker Australian dollar which pushed up the cost of its US dollar debt and supplies.
Overall, the airline reported a $33.5million net gain from the lower oil price.
Its fuel is hedged at an average price of $77 a barrel in the second half and it has little exposure to any participation in the downside at a time when the spot price of oil has fallen to $43 a barrel in Australian dollar terms.