February 12, 2019 / 10:00 PM / a year ago

UPDATE 2-Virgin Australia posts highest HY profit in decade on strong domestic market

* H1 pre-tax profit A$112.3 mln vs A$100 mln guidance

* Strong domestic business offsets higher fuel costs

* Expects 7 pct rise in Q3 revenue, no full-yr guidance

* Virgin, Qantas shares rise on result (Recasts with milestone, adds quotes, share price rise, details on outlook)

By Jamie Freed

SINGAPORE, Feb 13 (Reuters) - Virgin Australia Holdings Ltd posted its best half-year profit in a decade on Wednesday and forecast higher revenue in the current quarter on the strength of its domestic business and forward bookings.

The Australian domestic aviation market is largely a duopoly between Virgin and larger rival Qantas Airways Ltd, both of which have increased fares and boosted domestic earnings by cutting capacity.

Virgin beat its own earnings guidance for the first half and forecast a 7 percent revenue jump in the quarter ending March 31, pushing its shares up 10.3 percent to a three-month high.

Qantas shares also rose 3.7 percent, the biggest gainer in the benchmark index as investors counted on the brighter outlook for the Australian domestic travel business to boost earnings across the board.

Virgin posted underlying pre-tax profit, the most closely watched measure, of A$112.3 million ($79.7 million) for the six months ended Dec. 31, compared with A$81.9 million a year ago.

The airline had guided for a profit of at least A$100 million and overcame A$88.2 million in fuel and foreign exchange headwinds during the half.

Revenue in Virgin’s domestic business, which accounts for nearly two-thirds of its sales, grew 10.3 percent, thanks largely to higher fares, the airline said.

Virgin has been looking to build on recent improvements in its balance sheet and domestic business and to turn around its international and low-cost divisions, both of which remained loss-making in the first half as its international division raised capacity to Hong Kong and New Zealand.

The airline said it expected revenue in the third quarter to grow by at least 7 percent from a year ago, but it declined to provide full-year earnings guidance due to broader market uncertainty.

“Domestically Australia is in pretty good shape,” outgoing Chief Executive John Borghetti said. “But what we don’t know is the stuff outside in the world that can influence it, like oil and currency. It would be wrong of us to guess.”

The company said last week that former DP World Australia boss Paul Scurrah would replace the long-serving Borghetti from March 25.

Challenges for Scurrah will include managing a complicated shareholder register dominated by strategic investors including Singapore Airlines Ltd, Etihad Airways, China’s Nanshan Group, debt-saddled conglomerate HNA Group and Richard Branson’s Virgin Group.

On a statutory basis, including one-off gains and losses, profit rose to A$73.8 million, a sizable jump from A$4.4 million a year ago. ($1 = 1.4092 Australian dollars) (Reporting by Jamie Freed in Singapore; additional reporting by Nikhil Kurian Nainan and Shriya Ramakrishnan in Bengaluru; Editing by Stephen Coates)

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