Originally Posted by
Arctaurus
At last, some analysis by someone who does have a clue as to where this is all headed.
Clearly not towards earnings of $1.2 billion in FY 2022.
I would love to see the assumptions that Deloitte based that projection on but clearing $1.2 billion EBITDA off of $5 billion revenue is extraordinarily difficult to envisage.
Let's start with the likelihood of being able to achieve $5 billion in revenue in FY22. Deloitte say that that is based on FY19 revenue less 15 percent. So their $5 billion appears to be based on Virgin's FY19 revenue of $5.827 billion less 15 percent. The problem with that is 22 percent of the $5.827 billion was derived from international and anyone who thinks that international will have rebounded to 85 percent of FY19 levels by 2022 would be in a distinctly bullish minority. And nearly 10 percent of the FY19 revenue came from Tiger and I don't think that Tiger is coming back.
But leaving that aside, there's the EBITDA margin!
24 percent! The last time that Virgin had a margin like that was back in the halcyon days of 2007. Then along came international and by 2010 their EBITDA margin was down to around 16 percent. Two years later, the last time they made a profit, it was about 9 percent. Last year it was 4 percent. For comparison, Qantas's EBITDA margin for the past four years has bounced around the high teens percent mark. Not 24 percent, not even in their record year of 2016.
If you leave aside margin and just look at the requisite operational cost base required - $3.8 billion - that looks like a couple of bridges too far. Last year Virgin's operating costs came to around $5.1 billion
exclusive of aircraft leasing costs. That means you've got to find $1.3 billion in savings - 25 percent - from the rest. That's a job for the big wire brush and it would not be pretty.
So, that Deloitte marketing spiel is somewhat delusional. Needless to say the bidders will have seen through it at a glance.