Virgin Australia has reaffirmed its FY27 outlook, with first-half underlying EBIT expected to remain broadly in line with the prior year despite elevated fuel, airport and labour costs. The airline is trimming domestic capacity while maintaining 6% to 8% RASK growth and committing up to $1 billion to fleet and other capital investment.
- 1HFY27 underlying EBIT broadly in line with 1HFY26
- Domestic capacity cuts of 4% expected in 2QFY27 and 3QFY27
- Fuel costs forecast at approximately $700 million for 1HFY27
- RASK growth maintained at 6% to 8%
- FY27 capital expenditure guidance held at $900 million to $1.0 billion
Virgin Australia Reaffirms First-Half Earnings Outlook
Virgin Australia Holdings Limited (ASX:VGN) is sticking with its FY27 earnings outlook, even as the airline manages a costly combination of fuel, airport and labour pressures. The group expects underlying EBIT for the six months to 31 December 2026 to be broadly in line with 1HFY26, supported by resilient customer demand, disciplined capacity and benefits from its Transformation Program.
The guidance is not a new upgrade, but holding the line matters in an airline industry exposed to volatile operating costs. Virgin said fuel costs are expected to be approximately $700 million in 1HFY27, consistent with previous guidance, while ex-fuel cost growth is expected to remain below growth in revenue per available seat kilometre, or RASK.
Capacity Cuts Protect Revenue Performance
Virgin is responding to the cost environment by reducing seats and adjusting airfares rather than chasing volume. Domestic capacity fell 1% in the first quarter of FY27, is expected to fall 4% in the second quarter and is forecast to remain 4% lower in the third quarter. The company retained its forecast for 1HFY27 RASK growth of 6% to 8%.
That combination points to a deliberate trade-off: fewer available seats, but stronger revenue performance per seat. The approach echoes the airline’s earlier use of fare adjustments and capacity changes to absorb fuel pressure, while its fuel hedging strategy had previously helped limit the impact of rising jet fuel prices.
Fuel Protection Eases Before Second Half
Virgin has hedged 96% of its Brent exposure and 30% of refining margins for the remainder of 1HFY27. For 2HFY27, Brent hedging currently stands at 85%, with full participation if prices fall, while refining margin hedging is negligible.
The company expects fuel costs to be higher in the second half despite reduced capacity, based on the forward fuel curve at 5 November and lower hedging levels. That leaves the earnings outlook exposed to the interaction between fuel prices, refining margins, fares and capacity decisions rather than to fuel prices alone.
Fleet Investment Continues Despite Cost Discipline
Virgin has completed delivery of its FY27 new-aircraft orders, comprising five Boeing 737-8 MAX aircraft and two Embraer E190-E2 aircraft. It has also acquired four previously leased Boeing 737-800 aircraft, taking the proportion of owned aircraft in the fleet to approximately 39%.
The fleet renewal programme remains a significant use of capital. Following US Federal Aviation Administration certification of the Boeing 737-10, Virgin’s current schedule provides for the first delivery in June 2028, with further aircraft due in FY29. FY27 capital expenditure guidance remains approximately $900 million to $1.0 billion, while leverage is expected to sit towards the lower end of the group’s target range of 1 to 2 times net debt to EBITDA.
Velocity Growth Target Moves Beyond FY27
Velocity’s FY27 outlook is unchanged, with underlying EBIT expected to be broadly flat against FY26. The loyalty programme continues to benefit from member engagement and a growing network of financial services partners, while management is targeting low double-digit underlying EBIT growth in FY28 and FY29.
The immediate test is whether fare and capacity discipline can keep revenue growth ahead of ex-fuel cost growth as hedging protection reduces in the second half. The next material points of evidence will be the delivery of first-half earnings and how fuel, labour and airport costs compare with the assumptions behind the reaffirmed outlook.
Bottom Line?
Virgin has preserved its FY27 outlook, but the second half carries more fuel exposure as hedging declines and the fleet programme absorbs significant capital.
Questions in the middle?
- Can RASK growth remain within the 6% to 8% forecast as domestic capacity is reduced?
- How much higher will second-half fuel costs be once hedging levels and refining margin protection decline?
- Will the fleet investment programme deliver enough efficiency and reliability gains to offset airport and labour cost pressure?