Virgin Australia H1 Earnings Call Highlights

27 Feb 2026, 02:22 by Danessa Lincoln · The Markets Daily

Virgin Australia (ASX:VGN) executives used the company’s first-half FY2026 earnings call to highlight stronger-than-expected unit revenue growth, continued margin expansion, and a balance sheet positioned to fund a step-up in aircraft investment in the second half.

Chief Executive Officer and Managing Director Dave Emerson said the airline’s ambition remained “to be Australia’s most loved airline,” and argued the first-half performance reflected progress across its strategic pillars, including a simpler operating model, improvements in the customer experience, better operational performance, and consistent financial outcomes. Emerson also pointed to an evolution in leadership structure, with the creation of a Chief Customer Officer and CEO Velocity role that will combine customer experience, marketing, and loyalty under incoming executive Andrew Cleary.

Financial performance and key metrics

Management outlined three main takeaways from the half: revenue per available seat kilometer (RASK) growth of 6.4%, underlying EBIT growth of 11.7% with margin expansion, and leverage just below 0.9x net debt-to-EBITDA at the end of the period.

Group revenue rose 9.3% and underlying EBIT increased 11.7% to AUD 490 million. Underlying EBIT margin was 14.8%, up 40 basis points from the prior year. Underlying NPAT grew 21% to AUD 279 million, with Emerson citing EBIT growth and a 30% effective tax rate. Underlying EPS was AUD 0.351, up 11%, which he said included dilution from shares associated with the IPO. Statutory NPAT fell 28% due to prior-period benefits from deferred tax asset accounting recognition.

CFO Race Strauss said the group generated more than AUD 200 million of cash in the half and that “lower fuel costs and transformation benefits helped offset ongoing inflationary pressures and the cost of fleet investment.” Strauss added that the company has begun paying cash taxes and reported AUD 94 million of franking credits as of December 31. He advised analysts to assume a 30% tax rate in future modeling.

Airline segment: unit revenue strength amid cost headwinds

Virgin’s airline segment (domestic, international, and charter) delivered underlying EBIT of AUD 419 million, up 13.5%, representing a 13.1% margin. RASK growth of 6.4% exceeded prior guidance of 3% to 5%, with management calling out a particularly strong December and event-driven leisure travel, including the Lions and Ashes sporting tours.

On a capacity basis, the company said it remained disciplined, with total available seat kilometer (ASK) growth of 2.3% (domestic up 4.2%). International ASKs declined 6.7%, which management attributed to the prior year’s exit from the Cairns–Tokyo Haneda route. In Q&A, Virgin’s Chief Commercial Officer said the Haneda exit did not materially affect the reported RASK performance and that both overall and domestic RASK were around 6.4%.

Operationally, the company reported a 98.5% completion rate and load factors above 86%. Emerson said on-time performance improved but still had room to get better, noting the airline led major Australian carriers in on-time performance in January. Net promoter score (NPS) improved to 28.

Cost inflation remained a key theme. The airline’s CASK increased 5.7%, which management attributed to cost escalation in areas such as airport charges. Strauss said total underlying expenses increased 8.4% as lower fuel costs and transformation benefits were more than offset by higher non-fuel costs. He detailed several drivers:

Labor costs increased 8%, reflecting transformation investment, enterprise bargaining agreement (EBA) increases, and the transition to a public company remuneration structure (including STI and LTI).
Comms and tech rose 24% due to transformation investments and a shift of some costs from below-the-line to above-the-line as work transitions toward continuous improvement.
Maintenance increased 30%, reflecting business growth, higher rates tied to global supply chain pressures, and a one-time increase in end-of-lease provisions.
Airport charges increased 14%, which Strauss described as an industry-wide issue linked to ongoing airport capital investment, and expected to continue into the second half and beyond.

In Q&A, management said the one-time maintenance increase would not repeat. Strauss later quantified the incremental one-off end-of-lease cost as “close to AUD 40 million,” and said maintenance costs should be “significantly lower” in the second half when combined with planned lease extensions.

Velocity loyalty: record half, but margins expected to ease

Virgin’s Velocity business posted another record half, with underlying EBIT up 14.8% and margins expanding to “over 30%,” according to management. External billings were a record and increased nearly 19%, while underlying revenue grew 9.5%. The program added more than 700,000 new members and increased active members by 11%.

Executives highlighted growth across financial services, including new credit cards and points transfers from bank and non-bank partners. The company also launched “Pay with Points” for onboard use and with partners, and said the partnership with Qatar Airways continues to improve engagement.

However, management cautioned that Velocity margins are expected to “modestly reduce” in the second half as the business increases investment in partners, data, and personalization, and as redemption levels rise. In response to questions about redemption levels and the Qatar partnership, Velocity leadership said many newer members are still accumulating points, describing a typical timeline of about four years to a first long-haul redemption and about two years for short-haul redemptions.

Cash flow, fleet funding, and FY2026 outlook

The company generated AUD 223 million of cash in the half, driven by operating cash flow of AUD 644 million, which included AUD 90 million of tax payments. Total CapEx was AUD 235 million, which Strauss said was largely maintenance spend plus AUD 59 million of engine and aircraft CapEx, with the total lower than expected due to timing of maintenance events and aircraft pre-delivery payments. Asset proceeds of AUD 253 million reflected sale-and-leaseback transactions for delivered 737 MAX aircraft, with proceeds used to reduce debt.

Leverage fell to 0.9x net debt-to-EBITDA, and liquidity was AUD 1.4 billion (excluding AUD 200 million in restricted cash). Strauss said net debt would increase in the second half as the company purchases four 737 MAX 8 aircraft, but expected leverage to remain at the bottom end of the target range by the end of FY2026.

A key update was a fleet funding decision: Virgin will purchase nine of its remaining MAX 8 deliveries rather than lease them, with four to be purchased in 2H FY2026 and five in 1H FY2027. Strauss said the decision should reduce maintenance and depreciation costs, lower financing costs versus leasing, reduce foreign exchange risk by using Australian-denominated debt, and improve operational flexibility, while preserving the option to shift to leasing later if conditions change. He added the airline aims to reduce the leased share of its fleet from about 70% currently toward 50% over time, with an expected decline to 64% by the end of FY2027.

Looking ahead, Emerson said Virgin expects demand to remain strong and reiterated a disciplined approach to capacity, guiding to domestic ASKs up 2% to 3% in the second half and up 3% in the first quarter of FY2027. The company expects second-half EBIT and EBIT margins to be higher than the second half of FY2025, supported by forecast second-half RASK growth of 3% to 4%, despite continued airport charge increases. Gross transformation benefits are expected to exceed AUD 400 million in FY2026, with investment being brought forward to accelerate FY2027 benefits. Velocity is expected to grow external billings by more than 10%, and management said it expects no impact from the proposed RBA decision on interchange fees.

Virgin raised FY2026 gross CapEx guidance to AUD 850 million to AUD 950 million, driven by aircraft purchases. In Q&A, Strauss said the company roughly expects to spend “just over AUD 100 million” on non-aircraft CapEx and about AUD 400 million on maintenance-type CapEx, with the remainder related to aircraft. Emerson closed by emphasizing the company’s intent to build a track record of making commitments and delivering on them, calling the first-half performance evidence of momentum heading into year-end.

About Virgin Australia (ASX:VGN)

Virgin Australia (ASX:VGN) is an Australian airline group that operates scheduled passenger services across the domestic market and on selected short- and medium-haul international routes. The carrier positions itself as a full-service alternative for both leisure and corporate travelers, offering a mix of economy and premium cabin products and serving major Australian gateways and regional centres through its network and partner arrangements.