Virgin Australia defers Boeing deliveries after profits drop

By Jamie Freed

SYDNEY (Reuters) - Virgin Australia Holdings Ltd (VAH.AX) on Friday said it would defer the delivery of new Boeing Co (BA.N) 737 MAX aircraft for at least a year as it continues to battle against tough demand conditions in the domestic aviation market.

Virgin Chief Executive John Borghetti said the capital cost of buying the new aircraft for Australia's second-largest airline "far outweighs" savings on offer from operating more fuel-efficient planes given the oil price was relatively low.

"The fuel business case isn't as good as it was," he told Reuters in a phone interview after the airline reported a 48 percent fall in first-half underlying pre-tax earnings to A$42.3 million ($32.56 million). "On balance we can push these back."

Borghetti declined to say how many 737 MAX deliveries would be affected, but a person with knowledge of the situation told Reuters it was between five and 10 aircraft. Borghetti did not rule out a further deferral, depending on market conditions.

Virgin is the latest customer of the U.S. based aircraft manufacturer to defer deliveries at a time when orders for Boeing and rival Airbus Group SE (AIR.PA) have slowed globally due to weakening economies and relatively low oil prices.

Australia's domestic aviation market, dominated by Virgin and its larger rival Qantas Airways Ltd (QAN.AX), has been subdued for the past year due to weak demand for flying from corporate customers, including mining companies, as well as government travelers.

Virgin said domestic yields, a proxy for average fare prices, had fallen by 5.6 percent in the first half of the financial year, although Borghetti said booking trends had improved in the last few weeks in a positive sign.

"I would like to think it would improve in the second half of this calendar year but who knows?" Borghetti said of the outlook. "At some point you have got to believe the market has got to come back."

Virgin on Friday separately said it planned to launch flights between Australia and Hong Kong in the middle of this year as part of a proposed alliance with shareholder HNA Aviation and affiliated carriers Hong Kong Airlines and Hong Kong Express.

Borghetti declined to disclose the departure city for the flight, which could compete against non-stop flights to Hong Kong flown by Qantas and Cathay Pacific Airways Ltd . He said Virgin also planned to fly to Beijing and Shanghai in the future, but that would depend on the availability of airport slots.

(Reporting by Jamie Freed; Editing by Louise Ireland and Lisa Shumaker)