How the first phase of peak oil brought Virgin Australia into minus after 2008
Fig 1: The conventional crude oil plateau started in 2005
At the end of the high oil price period in June 2014, Virgin Australia had liabilities of $ 4.7 bn. Despite lower oil prices it never got rid of that debt. Instead it increased by another $ 2.1 bn.
Fig 2: Virgin liabilities vs Brent oil price
This post is an update of:
Despite growth in passenger numbers Virgin Australia can’t make money since 2009
12/2/2014 (with data up to 2013)
All airlines are hit by the impact of the Corona virus but Virgin had problems before travel restrictions were introduced. High debt – accumulated over more than 10 years – is among the main reasons why voluntary administration was unavoidable.
Virgin Australia owes almost $7 billion to more than 12,000 creditors
We compare Virgin’s profits and losses with oil prices:
Fig 3: Profit/loss vs Brent oil price FY 2003-FY 2019
It is clear that Virgin went into the red after the oil price shock in 2008.
How have Virgin’s losses come about? The next graph shows how operating expenditure consumed the revenue. The 3 main cost components are fuel, airport charges and staff expenses. All have increased over the years, more than the number of available and revenue seat kms.
Fig 4: Virgin Revenue, Operating expenditure and profit/losses
Note that the irregularities in 2005/06 were caused by changes in the reporting periods.
Fig 5: Stacking on negative areas hides the losses
At the bottom we start with profits and losses (1) then stack hedges (2), income tax (3) and fuel (4).
The large loss in 2018 includes a tax expense of $m 452 resulting from a derecognition of deferred tax assets ($m 511) which had accumulated since 2009 (see note B5, Annual Report 2018, p62).
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