Virgin Australia says its core domestic business is on the mend despite weaker demand leading to an underlying annual loss of $3.7 million.
A fall in domestic corporate and leisure travel contributed to a 69 per cent drop in underlying earnings in Virgin Australia's domestic business in the 2016/17 financial year.
However, the airline said domestic conditions have turned around, with underlying earnings in the final three months of 2016/17 up $38.4 million from a year ago.
Chief executive John Borghetti said the improvement was led by a rise in corporate travel, and the trend is expected to continue through the first three months of the current financial year.
Earlier this week, National Australia Bank's monthly business survey showed business conditions at their highest level in a decade.
"Business confidence seems to be running ahead of consumer confidence and that translates into what we have seen in the last quarter, where business travel has picked up more than leisure travel, and that translates into better yields," he told reporters.
"Capacity is at more sustainable and rational levels across the industry so there is a better match between demand and capacity than there used to be."
The company, and rival Qantas, have reduced capacity on domestic routes in response to subdued demand.
Virgin's TigerAir Australia business posted an underlying loss as the impact of its launch and withdrawal of operations to Bali within a year outweighed an improved performance on domestic routes.
Virgin Australia's international business returned to profit, with underlying earnings of $500,000, after the company stopped its loss-making flights to Abu Dhabi and made improvements to its business class.
The company's underlying pre-tax loss was smaller than market expectations of an $8.8 million loss, and Virgin Australia achieved positive cash flow for the first time since 2012.
Its statutory net loss of $220.3 million in the 2016/17 financial year was an improvement on the previous year, and included $142 million in costs related to its restructuring program.
The first year of its three-year plan involved changes to its aircraft fleet and routes, and staff cuts.
The airline said its statutory net loss was $185.8 million after removing $35 million distributed to part owners of its frequent flyers business.
Virgin Australia shares gained one cent to 18.5 cents.
DOMESTIC MARKET PULLS VIRGIN AUSTRALIA TO LOSS:
* Full year underlying pre-tax loss of $3.7m, from prior year's $41m profit
* Net loss of $220.3m, from $260.9m
* Revenue up 0.5pct to $5.05b
* No final dividend, unchanged
