By Julie Zhu and Sherin Sunny
Aug 28 (Reuters) - Virgin Australia said on Friday it expected to trim domestic capacity by 3% in line with rival Qantas Airways in the first half, supporting robust revenue growth, after posting better-than-expected full-year earnings.
Chief Commercial Officer Paul Jones said corporate and leisure travel demand was strong, but the country's second-biggest airline was expecting continued cost inflation and it would need to remain disciplined about capacity to protect margins.
The carrier reported a 22% rise in underlying net profit after tax of A$404 million ($290.64 million) for the 12 months ended June 30, beating Visible Alpha's consensus estimate of A$383.4 million and declared its first dividend since relisting in 2025.
Virgin Australia forecast that earnings before interest and tax in the first half would be broadly in line with the A$490 million reported last year despite a spike in fuel prices driven by the Iran war. It has hedged 96% of its Brent crude exposure and 20% of refining margins for the period.
Airlines around the world have been attempting to recoup rising fuel costs through various strategies including capacity cuts, fare rises and hedging, with varying levels of success.
Virgin Australia said revenue per available seat kilometre, a key measure of revenue earned from each seat flown, was expected to grow between 6% and 8% in the six months ending in December, ahead of the Visible Alpha consensus estimate of around 5.15%.
Qantas said on Thursday that its total revenue per available seat kilometre would rise by 8% to 10% in the same half, also ahead of expectations.
Citi analysts said there was potential upside for Virgin Australia given its guidance was more conservative than Qantas.
Jones said the airline expected domestic growth of 7% to 9%, with the broader guidance including its short-haul international flights.
He said Virgin Australia did not plan to follow Qantas' budget arm Jetstar in charging fees for storing carry-on baggage in overhead lockers.
"It's effectively for those customers a price increase for many of them in terms of what comes into the market next year," Jones said of the policy starting in February 2027. "That means that we obviously will be reviewing how we handle that from a pricing point of view."
Virgin Australia's shares rose as much as 3.9% after the release of the results before edging down nearly 3% in afternoon trade.
The airline's largest shareholder, U.S. private equity firm Bain Capital, is eligible to begin selling down its 39.9% stake starting on Monday when the shares are released from voluntary escrow, according to a separate filing.
($1 = 1.3900 Australian dollars)
(Reporting by Julie Zhu in Hong Kong and Sherin Sunny and Rajasik Mukherjee in Bengaluru; Editing by Jamie Freed)
