August 10, 2017 / 1:13 AM / a year ago

UPDATE 3-Virgin Australia posts narrower loss, corporate travel spike brightens outlook

* Improved business confidence driving corporate traffic: Virgin

* Underlying loss before tax of A$3.7 mln beats analyst estimates

* Virgin results positive for Qantas: Citi analysts

* Virgin shares jump 5.7 percent to 8-week high (Adds closing share prices, consumer confidence data)

By Jamie Freed

SINGAPORE, Aug 10 (Reuters) - Virgin Australia Holdings Ltd , the country’s second-biggest airline, reported on Thursday a smaller-than-expected annual loss and said its outlook had brightened with a surge in business confidence driving up corporate traffic.

In positive signs not only for Virgin but also larger rival Qantas Airways Ltd, Virgin CEO John Borghetti said the corporate market had improved in the fourth quarter ended June and the momentum was continuing in the current quarter.

A measure of Australian business conditions hit its highest since early 2008 in July as sales and profits stayed strong, while firms turned more confident the purple patch would last for some time yet.

“Business travel seems to have picked up more than leisure travel,” Borghetti told reporters. He said yields, a measure of ticket prices, were improving as a result.

Business travel tends to be more lucrative than leisure travel because of the higher ticket prices typically charged for bookings made closer to the flight date.

Virgin reported an underlying annual loss before tax of A$3.7 million ($2.92 million), versus an average forecast for a A$22 million loss from five analysts polled by Thomson Reuters.

The statutory net loss after tax for the year to June 30 was A$185.8 million, versus a A$224.7 million loss a year ago.

Virgin shares jumped 5.7 percent to close at an eight-week high, while the broader market eased 0.1 percent.

Qantas shares closed 2.5 percent higher, with Citi analysts saying the Virgin results were encouraging for the strength of the domestic market.

“We expect the domestic duopoly will likely continue with rational capacity management as well as fare increases over the next 12 months,” the analysts said in a note to clients.

Borghetti said Virgin, partly owned by British entrepreneur Richard Branson, was ahead of schedule on its cost-cutting programme and was increasing its targeted savings by A$50 million, to A$350 million a year.

While business confidence is strong, Australian consumer sentiment slipped to its lowest rate in more than a year in August as worries over family finances swamped increasing optimism about the economic outlook.

Virgin and Qantas have cut capacity in response to weak domestic demand, while also adding routes to the lucrative China market.

Last month, the International Monetary Fund revised up its economic growth forecast for China on expectations Beijing would maintain high levels of public investment.

In a separate statement, Virgin said it had received authorisation from the Australian Competition and Consumer Commission for its alliance with HNA Aviation, Hong Kong Airlines and HK Express for a five-year term.

Virgin began flying from Melbourne to Hong Kong last month and plans to add routes to mainland China. ($1 = 1.2655 Australian dollars) (Reporting by Jamie Freed in Singapore and Christina Martin in Bengaluru; Editing by Stephen Coates and Himani Sarkar)

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