ANNUAL REPORT 2019 MOSCOW COPENHAGEN MANCHESTER MINSK DUBLIN AMSTERDAM LONDON BRUSSELS DSS ELDOR F FRANKFURT PARIS ASTANA MUNICH ZURICH GENEVA MILAN TURIN GENOA VENICE MADRID BARCELONA BELGRADE BOLOGNA FLORENCE ROME NAPLES CHANGCHUN SAPPOR O SPLIT DUBROVNIK SKOPJE BARI BRINDISI ISTANBUL BEIJING LAMEZIA TERME PALERMO ATHENS TIANJIN TAIYUAN CATANIA SEOUL YONAGO ISLAMABAD BEIRUT RABAT CASABLANCA OKAYAMA XI'A N FUKUOKA NANJING LAHORE AMMAN SHANGHAI CHENGDU KUWAIT CHONGQING DELH I KATHMANDU BAHRAIN DAMMAM MEDINA GUIYANG DUBAI MUSCAT OKINAWA TAIPE I XIAME N DHAKA AHMEDABAD SHENZHEN GUANGZHOU KOLKATA ALAIN KAGOSHIMA HANGZHOU NANCHANG CHANGSHA KUNMING KARACH I ABU DHABI RIYADH TOKYO NAGOYA OSAKA MANDALAY HONG KONG HANOI JEDDAH HAIKOU MUMBAI CHIANG MAI VISAKHAPATNAM HYDERABAD SANYA SAIPAN YANGON DA NANG BENGALURU CHENNAI PHNOM PENH COIMBATORE KOCHI COLOMBO MALE MANILA SIEM REAP BANGKOK HO CHI MINH CITY KO SAMUI PHUKET KOTA KINABALU PENANG MEDAN BANDAR SERI BEGAWAN KUALA LUMPUR MANADO SINGAPORE BALIKPAPAN PALEMBANG KAVIENG LIHIR ISLAND TIMIKA JAKARTA MAKASSAR SEMARANG BANDUNG SURABAYA PRAYA LABUAN BAJO YOGYAKARTA KUPANG DENPASAR (BALI) CHRISTMAS ISLAND MT HAGEN GOROKA LAE POPONDETTA PORT MORESBY (PAPUA NEW GUINEA) RABAUL TUFI HONIARA (SOLOMON ISLANDS) DARWIN COCOS (KEELING) ISLANDS LUSAKA CAIRNS KUNUNURRA VICTORIA FALLS HARARE BROOME TOWNSVILLE PORT HEDLAND MAURITIUS WHITSUNDAY COAST KARRATHA MOUNT ISA CLONCURRY ONSLOW WINDHOEK ALICE SPRINGS ROCKHAMPTON EMERALD GLADSTONE BUNDABERG HERVEY BAY SUNSHINE COAST BRISBANE GOLD COAST BALLINA BYRON NEWMAN JOHANNESBURG ULURU (AYERS ROCK) DURBAN KALGOORLIE COFFS HARBOU R TAMWORTH PORT MACQUARIE NEWCASTL E SYDNEY PERTH EAST LONDON CAPE TOWN MILDURA ADELAIDE PORT ELIZABETH PORT V HAMILTON ISLAND MACKAY ALBURY CANBERRA MELBOURNE A NEW P LAUNCESTON HOBART HOKITI Q IN VIRGIN AUSTRALIA GROUP OUR NETWORK ROUTES LAUNCHED IN THE 2019 FINANCIAL YEAR: ANNUAL REPORT 2019 \tPerth-Hobart 466 Perth-Gold Coast (seasonal) Sydney-Hong Kong \tSydney-Wellington \tMelbourne-Queenstown DESTINATIONS IN OUR GLOBAL VIRTUAL NETWORK Newcastle-Auckland (seasonal) Darwin-Denpasar (seasonal) ANCHORAGE SASKATOON KAMLOOPS VANCOUVER VICTORIA CALGARY REGINA WINNIPEG KELOWNA SPOKANE ST JOHN'S SEATTLE QUEBEC BOZEMAN PORTLAND MINNEAPOLIS JACKSON HOLE SALT LAKE CITY RENO ASPEN LAS VEGAS DENVER ALBUQUERQUE PHOENIX LOS ANGELES OKLAHOMA CITY TUCSON AUSTIN MEMPHIS ATLANTA HUNTSVILLE DALLAS SAN DIEGO MONTREAL TORONTO ROCHESTER MILWAUKEE SYRACUSE MADISON DETROIT BUFFALO BOSTON CLEVELAND CHICAGO HARTFORD OMAHA DES PITTSBURGH NEW YORK DAYTON MOINES PHILADELPHIA COLUMBUS INDIANAPOLIS BALTIMORE CINCINNATI KANSAS CITY ST LOUIS WASHINGTON LOUISVILLE RICHMOND NASHVILLE KNOXVILLE NORFOL K TULSA BOISE SACRAMENTO SAN FRANCISCO SAN JOSE OTTAWA GRAND RAPIDS RALEIGH-DURHAM CHARLOTTE GREENVILLE-SPARTANBURG BIRMINGHAM HOUSTON SAN ANTONIO HALIFAX CHARLESTON JACKSONVILLE NEW ORLEANS TAMPA ORLANDO WEST PALM BEACH FORT LAUDERDALE MIAMI MONTERREY SAN JOS DEL CABO LIHUE HONOLULU KAHULUI/MAUI PUERTO VALLARTA GUADALAJARA KONA/HAWAII CANCN COZUMEL MEXICO CITY SLAND ON ISLANDS) APIA (SAMOA) NAD I (FIJI) PORT VILA (VANUATU) SLAND NUKU'ALOF A (TONGA) RAROTONGA (COOK ISLANDS) TON ONE ABERG EY BAY HINE COAST SBANE D COAST LINA BYRON S HARBOU R MACQUARIE STL E KERIKERI WHANGAREI AUCKLAND HAMILTON TAURANGA ROTORUA GISBORNE NAPIER-HASTINGS PALMERSTON NORTH WELLINGTON BLENHEIM NEW PLYMOUTH TAUPO NELSON HOKITIKA CHRISTCHURCH TIMARU QUEENSTOWN DUNEDIN INVERCARGILL CONTENTS 2 SNAPSHOT 4 CHAIRMAN'S REPORT 6 CEO'S REPORT 8 DIRECTORS' REPORT 41 FINANCIAL REPORT 100 INDEPENDENT AUDITOR'S REPORT 107 SHAREHOLDER INFORMATION 109 CORPORATE DIRECTORY Virgin Australia Group | Annual Report 2019 1 PASSENGERS CARRIED (MILLIONS) 22.3 18.6 19.4 19.3 23.7 24.2 24.9 25.5 20.0 2011 2012 2013 2014 2015 2016 2017 2018 2019 133* 9.8M 466 10,620 OPERATING FLEET VELOCITY MEMBERS DESTINATIONS IN OUR GLOBAL VIRTUAL NETWORK NUMBER OF EMPLOYEES KEY HIGHLIGHTS Aircraft operating in our sustainable aviation fuels trial flew more than one million kilometres to a range of domestic and international destinations We exceeded our target of an equal intake of males and females for our 2018 Pilot Cadetship program We launched new routes, including Sydney-Hong Kong, Sydney-Wellington, Melbourne-Queenstown and Perth-Hobart We launched an international lounge network in Australia and New Zealand We hosted the world's first dedicated meditation flight with Sir Richard Branson We celebrated 10 years of flying to Los Angeles Out of all major airlines in Australia, Virgin Australia Airlines was the most on time airline for departures and the airline least likely to cancel a flight * \u0007Operating fleet excludes aircraft that have been removed from operational service. 2 Virgin Australia Group | Annual Report 2019 Statistics have been rounded. Passengers Carried and Kilometres Flown include 100% of Tigerair Australia statistics from 1 November 2014. TOTAL REVENUE AND INCOME ($ BILLIONS) 5.83 5.42 4.75 3.92 4.02 5.02 5.05 4.31 3.27 2011 2012 2013 2014 2015 2016 2017 2018 2019 AVAILABLE SEAT KILOMETRES (BILLIONS) 46.0 47.0 46.8 37.1 39.8 48.6 51.2 41.8 42.2 2011 2012 2013 2014 2015 2016 2017 2018 2019 AWARDS Virgin Australia was awarded World's Best Cabin Crew for 2019 by AirlineRatings.com, and named number five in the Top Ten airline rankings as part of its Airline Excellence Awards Virgin Australia was awarded a five star rating by the Airline Passenger Experience Association (APEX) for the second consecutive year. The rating puts Virgin Australia in the top nine per cent of airlines worldwide to be given a five star rating through direct passenger rankings and feedback Velocity Frequent Flyer Program won Best Redemption Ability in the Middle East and Asia/ Oceania region airline category at the Freddie Awards for the seventh year in a row Virgin Australia Group | Annual Report 2019 3 CHAIRMAN'S REPORT The 2019 financial year was a challenging period for the Virgin Australia Group and the aviation industry more broadly. Subdued economic conditions, higher fuel prices and a weaker Australian dollar all had an impact on the Group's full year performance. aviation market and all travellers today benefit from the strong competition he brought to the local industry. We were not the only company affected by these conditions. However, in this environment it is more important than ever for the Board and management to focus on the financial resilience of our business and the factors we can control. Since commencing in the role, Paul and his management team have delivered on a number of immediate priorities including a restructure of the Group's Boeing 737 MAX order and a reduction in capacity in line with subdued market conditions. Most recently, the Group announced a simplified organisational structure and a new Executive Leadership Team who will drive change and identify greater opportunities for the Group's future success. The Group reported a loss at both the underlying and statutory levels for the full year, which is a disappointing outcome for our shareholders and demonstrates the need for change. While revenue and passenger numbers continued to grow, there is still more work for the Group to do to translate this into earnings. This speaks to a need for greater cost focus within our business. The Board is confident that changes are underway under the leadership of new Chief Executive Officer and Managing Director, Paul Scurrah, who we welcomed at the end of March 2019 following an extensive global search. Paul's appointment follows the Group's former CEO John Borghetti stepping down after eight years. I would like to once again thank John for his contribution. He helped reposition our airline across many segments of the The focus of Board and management now turns to consolidating the Group's transformation and making important changes to improve our profitability. This comes with challenging decisions including a reduction of the corporate and head office workforce and a review of our fleet, network and capacity. These are difficult decisions for any management team, however are necessary ones for the future growth and sustainability of our business. A strategic review of the Group remains underway and we look forward to sharing more detail on the long-term positioning and direction of the Group in due course. As a responsible corporate citizen, the Group is committed to using its role in the community and we work with our partners to make a positive difference in the lives of young Australians dealing with serious illness, hardship and mental health challenges. Virgin Australia is also there in times of crisis, to support communities impacted by floods, cyclones and other natural disasters. During the year, we helped to celebrate the Starlight Children's Foundation 30th anniversary by operating a special charter flight for Starlight recipients and their families. As Starlight's official Wish granting partner, Virgin Australia has helped to grant more than 1,200 wishes for Starlight since our partnership began and we look forward to working with them moving forward. The 2019 financial year also saw renewal at the Board level. We welcomed Sir Angus Houston and Judith Swales as Independent Non-Executive Directors following Mark Vaile and Sam Mostyn stepping down. In terms of our major shareholders, we also welcomed Hou Wei as nominee Director and Du Ming as an Alternate Director for the HNA Group, which followed the resignation of Zhang Kui and Luo Jiaqi. Ray Gammell was also appointed as nominee Director for the Etihad Aviation Group following the resignation of Robin Kamark. I'm pleased to welcome our new directors who all bring a diversity of skills and experience, and I would like to thank those who have stepped down for their passion, exceptional counsel and commitment while serving on our Board. The Virgin Australia Group remains as focused as ever on delivering a great experience for our customers and providing strong competition across all market segments. A number of changes have been announced to strengthen the financial performance of our business and help deliver profitable growth moving forward. 4 Virgin Australia Group | Annual Report 2019 In addition to the Group's Board and management, there are a number of parties to acknowledge. I would like to thank our major shareholders Etihad Aviation Group, HNA Aviation Group, Nanshan Group, Singapore Airlines Limited and the Virgin Group for their support during the past year. I would also like to thank our other shareholders with smaller holdings for their support of the Group. I would especially like to recognise the people at the Virgin Australia Group for their effort and commitment to our customers and demonstrating the Group's values every day. Many of them are the face of our business and our success relies on the exceptional guest experience they deliver. There is important work to do during the 2020 financial year on the financial performance of our business to improve profitability. The Board and management team remain confident that the benefits of the changes announced will begin to be realised this financial year, and I look forward to updating you on our progress. Yours Sincerely, ELIZABETH BRYAN Chairman, Virgin Australia Group CEO'S REPORT FINANCIAL PERFORMANCE 1 There were a number of factors that impacted our results for the 2019 financial year. There were challenging economic conditions that fostered a subdued revenue trading environment in the second half of the financial year. The timing of Easter and the market uncertainty created by the Federal Election in the second half of the financial year impacted the demand for business and leisure travel. There were also rising fuel, operational and capacity costs and a weakening Australian dollar. The Group delivered the following results: \t\u0007Group Revenue of $5.8 billion, an improvement of 7.5 per cent on the prior corresponding period. \t\u0007A Group Underlying Loss Before Tax of $71.2 million, compared to an Underlying Profit Before Tax of $64.4 million in the prior financial year, representing a decline of $135.6 million and impacted by fuel and foreign exchange headwinds. \t\u0007A Group Statutory Loss After Tax of $315.4 million, impacted by restructure costs of $223.2 million, including a $152.6 million asset impairment of the Tigerair Australia and Virgin Australia International businesses. \t\u0007Positive Free Cash Flow of $53.9 million, a decline of $19.2 million on the prior corresponding period and inclusive of $158.8 million in fuel and foreign exchange headwinds. \t\u0007Adjusted Net Debt increased by $95.8 million, due in part to adverse foreign exchange movements. STRATEGIC REVIEW OF THE BUSINESS TO DRIVE CHANGE Whilst our customer base and revenue continued to grow, our business is not seeing the benefits of this and changes are required to improve our financial performance. If we are to deliver for our customers, our shareholders and our broader team moving forward, we need to better manage our cost base and identify opportunities to strengthen our business. When I was appointed as CEO and Managing Director, there were a number of key priorities that needed to be addressed to meet these objectives. We restructured the Group's order of Boeing 737 MAX aircraft with Boeing, resulting in a significant deferral of capital expenditure. We responded to the subdued market conditions in the second half of the year and reduced capacity by 1.5 per cent, to reduce costs in a low demand environment. In addition, we are also undertaking a strategic review of the business and a number of initiatives have been announced including: \t\u0007a simplified organisational structure establishing Group-wide accountability across all brands, and the appointment of a new Executive Leadership Team. \t\u0007The Group's Cash balance increased by $324.5 million to $1.7 billion, largely attributable to the Group's refinancing activities undertaken during the year. \t\u0007an organisational rightsizing program to match the size of our team to the current scale of our business. This will target a reduction of 750 corporate and head office roles during FY20 and aims to reduce our costs by $75 million per annum. \t\u0007Financial Leverage of 4.7x, 0.6 higher than the 2018 financial year, impacted by fuel and foreign exchange headwinds and the softer revenue environment in the second half of the financial year. \t\u0007a review of our fleet, network and capacity to deliver improved aircraft utilisation, capacity to match moderated market conditions, and enhance route profitability. \t\u0007a review of all current supplier agreements to renegotiate key contracts including aircraft leases, airports, maintenance and strategic supply agreements, targeting at least $50 million in cost savings per annum. These changes will be key to building a stronger, more resilient business and ensuring that we can continue to provide strong competition in all markets we operate in. Whilst decisions impacting our people are never easy to make, they have been made in the long-term interests of the Group. These initiatives will be key to reducing the Group's cost base and improving our bottom line. They will also ensure we are better positioned to capture growth opportunities in the future. SAFETY The Virgin Australia Group takes an uncompromising approach towards safety - it is at the forefront of everything we do and our number one priority is to ensure the safety of our guests, crew and aircraft at all times. Throughout the year, the Group has continued its focus on operational safety and on reducing its Lost Time Injury Frequency Rate (LTIFR). We have seen continued improvement across all parts of the Virgin Australia Group. The LTIFR targets at both the Group and airline level were achieved, with results of 0.69 for the airline and 0.70 for the Group, against targets of 1.33 and 1.75 respectively. SUSTAINABILITY The Group understands its responsibility to invest in projects that will reduce our impact on the environment. Carbon emissions are the most significant environmental issue in the aviation industry and during the year, we successfully completed a sustainable During the 2019 financial year, the Virgin Australia Group has focused on building a more resilient business. Being a diversified airline group that competes across all market segments, we have not been immune to the impacts stemming from a challenging economic climate. Whilst the Group delivered a disappointing set of results, it underscores the need for change in our business to improve our financial performance and position our organisation for future success. 6 Virgin Australia Group | Annual Report 2019 aviation fuels trial at Brisbane Airport. Under the trial, aircraft flew more than one million kilometres using a blended mix of the low carbon aviation fuel. This trial tested the supply chain readiness for such fuels in the Australian market and has helped us to move one step closer towards the future use of low carbon fuels in the joint refuelling system of a major airport. OUR PEOPLE Our people are the reason our customers come back to fly with us time and time again. It goes without saying that it is the people in our business that set us apart from other airline groups. I would like to thank them for their unwavering commitment to exemplifying the values of our company and for continuing to deliver the unique customer experience that we are renowned for. PRIORITIES FOR THE 2020 FINANCIAL YEAR The Group will remain focused on the strategic positioning of our business. If we are to continue to bring strong competition to the Australian aviation market now and into the future, we need to have a long-term focus and identify the opportunities that will deliver for our customers, our shareholders and our team. The new Executive Leadership Team will be responsible for setting the Group-wide approach for our business. They will also be responsible for driving outcomes that reflect the Group's focus on being the best value airline for our corporate and leisure travellers and making sure our customers remain at the heart of everything that we do. I would like to thank all shareholders for their ongoing support. I am confident that with the work that is underway in our business, we will be able to deliver long-term benefits and become a more profitable airline group going forward. PAUL SCURRAH Chief Executive Officer and Managing Director, Virgin Australia Group 1. For definitions of capitalised terms used in the CEO's Report and further information on the financial performance of the Virgin Australia Group in the 2019 financial year, please refer to the document entitled 'Release FY19 Financial Results' released to the Australian Securities Exchange on 28 August 2019. Directors' report The directors present their report on the consolidated entity comprising Virgin Australia Holdings Limited ACN 100 686 226 (VAH or the Company) and the entities it controlled at the end of, or during, the financial year ended 30 June 2019. Directors The directors of the Company at any time during or since the end of the financial year are: Ms Elizabeth Bryan AM (Chairman) Mr Paul Scurrah (appointed 25 March 2019) Mr Trevor Bourne Mr Mark Chellew Mr Ken Dean Mr Ray Gammell (appointed Alternate Director 17 July 2018, appointed Director 20 December 2018) Mr Hou Wei (appointed 28 May 2019) Air Chief Marshal Sir Angus Houston, AK, AFC (Ret'd) (appointed 12 December 2018) Mr Lan Xiang Mr Warwick Negus Ms Judith Swales (appointed 29 May 2019) Mr Marvin Tan Mr Du Ming (Alternate Director, appointed 28 May 2019) Mr Tan Pee Teck (Alternate Director) Mr Wu An (Alternate Director) Mr John Borghetti (ceased 25 March 2019) Mr Robin Kamark (ceased 20 December 2018) Ms Samantha Mostyn (ceased 29 May 2019) The Hon. Mark Vaile AO (ceased 12 December 2018) Mr Zhang Kui (ceased 28 May 2019) Mr Luo Jiaqi (Alternate Director) (appointed 17 July 2018, ceased 28 May 2019) Except where otherwise indicated, each director named above held office for the whole financial year ended 30 June 2019. Details of directors and alternate directors, their qualifications, experience and special responsibilities Directors holding office at the date of this report Ms Elizabeth Bryan AM - BA (Econ.), MA (Econ.), Chairman and Independent Non-Executive Director Ms Elizabeth Bryan was appointed Company Chairman and to the Board on 20 May 2015. Ms Bryan is Chair of the Nomination Committee. Ms Bryan is one of Australia's most respected corporate leaders, bringing more than 30 years of leadership experience and strategic and financial expertise to the Board. She has held senior positions in a diverse range of industries including financial services, oil and gas, agriculture, aviation, management consulting and the public sector. Ms Bryan is also Chairman of Insurance Australia Group. Ms Bryan has served as Chairman of Caltex Australia Limited and UniSuper Limited as well as a Director of Westpac Banking Corporation and a large number of other Australian public, private and government-owned companies. She also held the position of Chief Executive Officer of Deutsche Asset Management Australia and its predecessor organisation the State Super Investment and Management Corporation for over a decade. Listed directorships held at the date of this report or during the three year period ending 30 June 2019: - Director of Westpac Banking Corporation (6 November 2006 to 9 December 2016) - Chairman of Insurance Australia Group Limited (current, appointed 5 December 2014) 8 Virgin Australia Group | Annual Report 2019 Directors (continued) Details of directors and alternate directors, their qualifications, experience and special responsibilities (continued) Mr Paul Scurrah - Managing Director and Chief Executive Officer Mr Paul Scurrah was appointed Managing Director and Chief Executive Officer and appointed to the Board on 25 March 2019. Mr Scurrah is a member of the Safety and Operational Risk Review Committee. Mr Scurrah has more than 20 years of leadership experience in the transport, logistics, travel and aviation sectors, having previously been CEO of DP World Australia and Queensland Rail and held Executive Management roles at Aurizon, Flight Centre and Tourism Queensland. Mr Scurrah is a Non-Executive Director of the Gold Coast Suns Football Club. He was previously a director of Australia Post (2017-2019), Asian Terminals Inc (ATI), the Australian Federation of Travel Agents, AOT Group, AWH Pty Ltd, Public Transport Group-Australasian Railway Association and Chairman of Australian Tourism Data Warehouse Ltd. Listed directorships held at the date of this report or during the three year period ending 30 June 2019: - Nil Mr Trevor Bourne - Bachelor of Engineering (Mechanical), University of New South Wales, Master of Business Administration, University of Newcastle, Fellow of the Australian Institute of Company Directors, Independent NonExecutive Director Mr Trevor Bourne was appointed to the Board on 1 January 2018. Mr Bourne is Chair of the Safety and Operational Risk Review Committee, a member of the Audit and Risk Management Committee, the Remuneration Committee and the Nomination Committee. Mr Bourne is the Chairman of the ASX listed company Senex Energy Limited. He is also a Director of Sydney Water Corporation. Previously, Mr Bourne served as a Director of Origin Energy Limited for 12 years, a Director of Caltex Australia Limited for 13 years and Coates Hire Ltd for four years, as well as holding other directorships. He was Chief Executive Officer of Tenix Industries for four years and prior to that was a senior executive at Brambles Industries Limited for 15 years, the last six of which as Managing Director of Brambles Australia. Listed directorships held at the date of this report or during the three year period ending 30 June 2019: - Director of Caltex Australia Limited (2 March 2006 to 9 May 2019) - Chairman of Senex Energy Ltd (current, appointed December 2014) Mr Mark Chellew - Bachelor of Science (Ceramic Engineering), University of New South Wales, Master of Engineering (Mechanical), University of Wollongong, Graduate Diploma of Management, University of New South Wales, Independent Non-Executive Director Mr Mark Chellew was appointed to the Board on 1 January 2018. Mr Chellew is Chair of the Remuneration Committee, a member of the Audit and Risk Management Committee and the Nomination Committee. Mr Chellew is the Chairman of the ASX listed company Cleanaway Waste Management Limited and has served as a Non-Executive Director of that company since 2013. He is also a Director of the ASX listed group Infigen Energy Limited and Caltex Australia Limited and was until recently Chairman of the industry body, Manufacturing Australia. He was the Chief Executive Officer and Managing Director of Adelaide Brighton for 13 years. Prior to that, he held executive management positions at Blue Circle Industries and CSR. Listed directorships held at the date of this report or during the three year period ending 30 June 2019: - Chairman of Cleanaway Waste Management Limited (current, appointed 1 March 2013) - Director of Caltex Australia Limited (current, appointed 2 April 2018) - Director of Infigen Energy Limited(current, appointed September 2017) Mr Ken Dean - B.Com (Hons), FCPA, FAICD, Independent Non-Executive Director Mr Ken Dean was appointed to the Board on 1 December 2016. Mr Dean is Chair of the Audit and Risk Management Committee, a member of the Safety and Operational Risk Review Committee and the Nomination Committee. He is Chair of Velocity Frequent Flyer Holdco Pty Ltd. Mr Dean is a Director of Energy Australia. He is Chair of the Audit & Risk Committee and a member of the Health, Safety, Security & Environment Committee at Energy Australia. He is also the Non-Executive Chairman of the not-for-profit organisation Mission Australia. Previously, Mr Dean was a Director of BlueScope Steel Limited, Santos Limited, Woodside Petroleum Limited and the Chief Financial Officer of resources company Alumina Limited. Mr Dean worked for Shell Group for 30 years, during which time he held a number of executive roles, managing foreign exchange and money markets, insurance, mergers and acquisitions, internal audit, financial control and SAP implementation, and as a Shell nominee Director of joint venture companies and committees. He was Chief Executive Officer of Shell Financial Services, a member of the Shell Group Global Senior Management Team and Executive Director of Finance and Corporate Services for Shell Australia. Listed directorships held at the date of this report or during the three year period ending 30 June 2019: - Director of Bluescope Steel Limited (21 April 2009 - 23 November 2018) Virgin Australia Group | Annual Report 2019 9 Directors' report(continued) Directors (continued) Details of directors and alternate directors, their qualifications, experience and special responsibilities (continued) Mr Ray Gammell - Bachelor of Arts degree, University College Galway, Master's degree in Business Studies, University College Dublin, Chartered Fellow of the Chartered Institute of Personnel Development, Non-Executive Director Mr Ray Gammell was appointed to the Board on 20 December 2018 and is a member of the Audit and Risk Management Committee and the Remuneration Committee. Mr Gammell was appointed Senior Strategic Advisor to the Group CEO of Etihad Aviation Group in July 2018. He joined Etihad in 2009 as Chief People and Performance Officer, developing and leading the company's people strategy. He also served as Interim Group Chief Executive Officer of Etihad Aviation Group from May to December 2017, before taking on the role of Chief People and Transformation Officer. As Senior Advisor to the Group CEO, he leads the equity partner strategy in addition to other strategic responsibilities. He has almost 40 years of experience, gained internationally with the Intel Corporation in the US and Ireland, the Royal Bank of Scotland, and as an officer in the Irish Armed Forces. Listed directorships held at the date of this report or during the three year period ending 30 June 2019: - Nil Mr Hou Wei - B. Chinese Language and Literature (Beijing Language and Culture University), Non-Executive Director Mr Hou Wei was appointed to the Board as a Director on 28 May 2019 and is a member of the Safety and Operational Risk Review Committee. Mr Hou is a senior executive of HNA Group, having joined HNA in 2006. His roles with HNA have been Executive Chairman of Hong Kong Airlines International Holdings Limited, President of Capital Airlines, Vice Marketing President of Hainan Airlines Holding, Marketing Director of Hainan Airlines Holding, Vice General Manager of Market Sales and International Affairs Manager of Market Sales. Listed directorships held at the date of this report or during the three year period ending 30 June 2019: - Nil Air Chief Marshal Sir Angus Houston, AK, AFC (Ret'd), Independent Non-Executive Director Sir Angus Houston was appointed to the Board on 12 December 2018 and is a member of the Audit and Risk Management Committee and the Safety and Operational Risk Committee. Sir Angus is Chancellor of the University of the Sunshine Coast Council. He is also Chair of a number of Boards including the Defence South Australia Advisory Board, the Victorian Police Corporate Advisory Group, the University of NSW Canberra Advisory Board, the Canberra Symphony Orchestra and the Supashock Advanced Suspension Advisory Board. He is a visiting fellow of the Australian National University Security College and the South Australian Special Envoy for International Trade & Investment. In addition, Sir Angus serves as a board member for numerous organisations and is Ambassador/Patron of a number of charitable organisations. Sir Angus was awarded the Knight of the Order of Australia in January 2015 for extraordinary and pre-eminent achievement and merit in service to Australia through distinguished service in the Australian Defence Force and continued commitment to serve the nation in leadership roles. Sir Angus has been awarded four honorary doctorate degrees from the University of South Australia, the Australian National University, the University of New South Wales and Griffith University. In July 2011, Sir Angus retired as Chief of the Australian Defence Force after 41 years of service in the military. Listed directorships held at the date of this report or during the three year period ending 30 June 2019: - Nil Mr Lan Xiang - Bachelor's Degree in Aeronautical Electrical Engineering, Civil Aviation University of China, Masters Degree in Business Management, Beijing Normal University, Non-Executive Director Mr Lan Xiang was appointed to the Board on 24 July 2017 and is a member of the Safety and Operational Risk Review Committee. Mr Lan is the President of Qingdao Airlines, which forms a part of the Nanshan Group. He joined Qingdao Airlines in 2013 as the Vice President responsible for Marketing and Informational Technology. Prior to this, Mr Lan was an executive and senior system analyst at Travel Sky, a provider of information technology solutions for the aviation and tourism industries. He has also held positions at Shenzhen Airlines and China Southern Airlines. Listed directorships held at the date of this report or during the three year period ending 30 June 2019: - Nil 10 Virgin Australia Group | Annual Report 2019 Directors (continued) Details of directors and alternate directors, their qualifications, experience and special responsibilities (continued) Mr Warwick Negus - BBus (UTS), MCom (UNSW), SF Fin, Non-Executive Director Mr Warwick Negus was appointed to the Board on 3 January 2017 and is a member of the Audit and Risk Management Committee and the Nomination Committee. Mr Negus is Chairman of Pengana Capital Group and URB Investments Limited. He is also a Director of Washington H Soul Pattinson & Co and Bank of Queensland, a Director of the diversified real estate company Terrace Tower Group and Chairman of UNSW Global Limited. From 2005 to 2008, Mr Negus was Chief Executive of Colonial First State Global Asset Management, Australia's largest fund manager. Prior to this, he co-founded 452 Capital, an independent fund management company, and held a number of senior positions in asset management and investment banking at Goldman Sachs in Hong Kong, Singapore, London and Sydney. He is also a member of the Council of University of NSW. Listed directorships held at the date of this report or during the three year period ending 30 June 2019: - Chairman of Pengana Capital Group (current, appointed 1 June 2017) - Chairman of URB Investments Limited (current, appointed 13 October 2016) - Director of Washington H Soul Pattinson & Company Limited (current, appointed 1 November 2014) - Director of Bank of Queensland (current, appointed 22 September 2016) Ms Judith Swales - B.Sc, Warwick University, AICD, Independent Non-Executive Director Ms Judith Swales was appointed to the Board on 29 May 2019 and is a member of the Remuneration Committee. Ms Swales was until recently a Non-Executive Director for Dulux Group and has previously served as a Non-Executive Director for Fosters. Ms Swales has been Chief Operating Officer Global Consumer and Foodservice for Fonterra since 2018, and was previously Chief Operating Officer Transformation and Innovation, Managing Director Oceania and Managing Director Australia. Prior to her roles at Fonterra, she was Managing Director for Heinz Australia, Managing Director and Chief Executive Officer for Goodyear Dunlop Tyres Australia and New Zealand, and Managing Director for Angus & Robertson/WH Smith Australia. This follows management roles for WH Smith, Cullens Stores and Marks & Spencer in the United Kingdom. Listed directorships held at the date of this report or during the three year period ending 30 June 2019: - Dulux Group (April 2011 to 21 August 2019) Mr Marvin Tan - BA International Relations, Stanford University, Non-Executive Director Mr Marvin Tan was appointed to the Board on 1 January 2016 and is a member of the Remuneration Committee. Mr Tan is the Senior Vice President Customer Services and Operations for Singapore Airlines. He joined Singapore Airlines in 1996 and has held various positions in the company both in Singapore and overseas. Prior to his current role, he was the Senior Vice President Cabin Crew. He was also seconded to SilkAir, Singapore Airlines' regional subsidiary, as the airline's Chief Executive. Mr Tan holds a Bachelor of Arts degree in International Relations from Stanford University. Listed directorships held at the date of this report or during the three year period ending 30 June 2019: - Nil Virgin Australia Group | Annual Report 2019 11 Directors' report(continued) Directors (continued) Details of directors and alternate directors, their qualifications, experience and special responsibilities (continued) Mr Du Ming - Bachelor's Degree, Civil Aviation University of China, Advanced Masters Degree, Aviation Management, Ecole Nationale de l'aviation civil (ENAC) and Tsinghua, Alternate Director Mr Du Ming was appointed as Alternate Director to Mr Hou Wei on 28 May 2019. Mr Du joined the HNA Group in 2001 and is a veteran airline executive. He has served in a broad range of managerial roles including flight operations, safety system, network planning and finance. He is also the Chairman of the Australian International Aviation College. Listed directorships held at the date of this report or during the three year period ending 30 June 2019: - Nil Mr Tan Pee Teck - B.B.A (Hons), National University of Singapore, MSc International Marketing, University of Strathclyde, Alternate Director Mr Tan Pee Teck was appointed as Alternate Director to Mr Marvin Tan on 1 January 2016. Mr Tan is the Senior Vice President Cabin Crew of Singapore Airlines. He joined Singapore Airlines in 1994 and has held various appointments both in Singapore and overseas, most recently as Senior Vice President Product and Services. He holds a Bachelor of Business Administration degree (honours) from the National University of Singapore and a Masters of Science in International Marketing from the University of Strathclyde. Mr Tan was appointed to the Board of Ritz-Carlton, Millenia Singapore Properties Private Limited on 1 September 2017. Listed directorships held at the date of this report or during the three year period ending 30 June 2019: - Nil Mr Wu An - Bachelor's Degree, Beijing University of International Study (First Class Honours), Undertook Masters program in Economics at Capital University of Trade and Economics, Alternate Director Mr Wu An was appointed as Alternate Director to Mr Lan Xiang on 24 July 2017. Mr Wu is the General Manager of Nanshan Group's Investments department, a position he has held since 2015. Prior to this, Mr Wu was a senior executive and consultant at Geoff Raby & Associates, a consulting firm founded by former Australian Ambassador Dr Geoff Raby. Between 2004 and 2012, Mr Wu served three Australian Ambassadors to China, providing advice on a wide range of issues. Listed directorships held at the date of this report or during the three year period ending 30 June 2019: - Nil 12 Virgin Australia Group | Annual Report 2019 Directors (continued) Directors' meetings Details of the number of meetings held by the Board and its Committees during the 2019 financial year and each director's attendance at those meetings are set out below: Board Committees(1) Audit and Risk Management Director Ms E Bryan AM Attended 7 Held (2) Attended 7 - Nomination Held (2) Attended - 3 Safety and Operational Risk Review Remuneration Held (2) Attended 3 - Held (2) Attended - - Special Purpose Held (2) Attended Held(2) - 3 3 Mr J Borghetti AO 5 5 - - - - - - 3 3 - - Mr T Bourne 6 7 6 7 - - 5 5 4 4 - - Mr M Chellew 7 7 7 7 - - 5 5 - - 3 3 Mr K Dean 7 7 7 7 - - - - 4 4 - - Mr R Gammell 3 4 3 3 - - 1 1 - - - - Mr W Hou - 1 - - - - - - - - - - Sir Angus Houston 3 3 3 3 - - - - 2 2 - - M R Kamark 3 4 3 4 - - - - - - - - Mr X Lan 6 7 - - - - - - 4 4 - - Ms S Mostyn 7 7 - - 2 3 - - 3 4 - - Mr W Negus 7 7 6 7 - - - - - - 2 3 Mr P Scurrah 2 2 - - - - - - 1 1 - - Ms J Swales - - - - - - - - - - - - Mr M Tan 7 7 - - 3 3 5 5 - - - - The Hon. M Vaile AO 5 5 3 4 1 2 2 3 - - - - Mr K Zhang 5 6 - - - - - - - 4 - - Mr M Du (Alternate to Mr W Hou) 1 1 - - - - - - - - - - Mr A Wu (Alternate Director to Mr X Lan) - - - - - - - - - - - - Mr J Luo (Alternate Director to Mr K Zhang) - - - - - - - - - - - - Mr P T Tan (Alternate Director to Mr M Tan) - - - - - - - - - - - - (1) There is a standing invitation for all directors to attend all Committee meetings. Directors are encouraged, and often attend meetings of Committees of which they are not members. The Chairman attends all Committee meetings. (2) Indicates the number of meetings held during the period the director was a member of the Board or relevant Committee or, in the case of alternate directors, while they were acting in the place of their appointing director. Virgin Australia Group | Annual Report 2019 13 Directors' report(continued) Directors (continued) Directors' interests The table below sets out the relevant interests in shares of Virgin Australia Holdings Limited held, as at the date of this report, by the directors and alternate directors. These include any interests held by them directly, indirectly or beneficially (including shares held in the name of a trustee, nominee or superannuation fund). Details of these relevant interests have been disclosed to the Australian Securities Exchange (ASX) in accordance with section 205G(1) of the Corporations Act 2001 (Cth) and the ASX Listing Rules. Number of relevant interests in ordinary shares Director Ms Elizabeth Bryan AM 227,044 Mr Paul Scurrah - Mr Trevor Bourne 100,000 Mr Mark Chellew 100,000 Mr Ken Dean 40,000 Mr Ray Gammell - Mr Hou Wei - Sir Angus Houston - Mr Lan Xiang - Mr Warwick Negus - Ms Judith Swales - Mr Marvin Tan - Mr Du Ming (Alternate Director) - Mr Tan Pee Teck (Alternate Director) - Mr Wu An (Alternate Director) - As at the date of this report, no options or rights over (nor contractual rights to call for or deliver) shares in Virgin Australia Holdings Limited or any related body corporate are held by any director or alternate director. Nor does any director or alternate director hold any right or option over (or any contractual right to call for or deliver) any debentures of, or interests in a registered scheme made available by, VAH or any related body corporate. Company secretary Ms Sharyn Page BA LLB ACIS was appointed Company Secretary on 1 February 2016. Ms Page was previously Company Secretary and General Counsel of SKILLED Group Ltd (December 2012 - December 2015) and Head of Human Resources (July 2014 - December 2015). Prior to that, Ms Page was Company Secretary of Spotless Group (2010 - 2012), Deputy Company Secretary ANZ (2009), Company Secretary Arrium Limited (2008 - 2009), Board Executive and Company Secretary AMP Limited (2005 - 2008) and Assistant Company Secretary AMP Limited (2003 - 2005). Ms Page previously held a number of legal and compliance roles within the financial services industry. Corporate governance statement The Corporate governance statement for Virgin Australia Holdings Limited is located at www.virginaustralia.com/corporategovernance. 14 Virgin Australia Group | Annual Report 2019 Operating and financial review Principal activities and overview of the Group The principal activities of the Group during the 2019 financial year were the operation of a domestic and international passenger and cargo airline business and a loyalty program. The Group offers a variety of aviation products and services to all key segments of the Australian aviation market, including corporate, government, leisure, low cost, regional and charter travellers and air freight customers. There were no significant changes in the nature of the activities of the Group during the year. The Group operates a global virtual network of over 460 destinations through its domestic and international operations, strategic alliances, codeshare and interline agreements. The Group flies to 39 city and regional destinations in Australia and a range of international destinations including Hong Kong, the United States of America, New Zealand, Indonesia and the South Pacific Islands. The Group currently operates a fleet of aircraft that includes Boeing 737 and Boeing 777 aircraft, Airbus A320 and A330 aircraft, ATR aircraft and Fokker F100 aircraft. The Group employs more than 10,000 people in Australia, New Zealand, Hong Kong and the United States of America. The Group has strategic alliances with four key airline partners: Delta Air Lines Inc., Etihad Airways P.J.S.C., HNA Aviation Group (including Hong Kong Airlines) and Singapore Airlines Limited. Since ending its strategic alliance with Air New Zealand, from 28 October 2018 onwards, the Group became a standalone operator on Trans Tasman routes. Key developments On 6 February 2019, the Group announced that Paul Scurrah had been appointed as the new Chief Executive Officer and Managing Director of the Virgin Australia Group, replacing John Borghetti, who stepped down from his position on 25 March 2019. Paul commenced in his role on the same date. On 26 February 2019, the Group announced the successful pricing of $250.0 million in Australian dollar unsecured fixed rate bonds which mature in May 2024. The bond issue underpins the Group's funding strategy to extend its debt maturity profile and increase the proportion of AUD funding in its debt portfolio to better match its revenue currencies. On 30 April 2019, the Group announced that it had reached an agreement with Boeing to restructure its Boeing 737 MAX aircraft deliveries, whereby the Group will take delivery of its first MAX aircraft, being a Boeing 737 MAX 10 aircraft, in July 2021. The first Boeing 737 MAX 8 aircraft is scheduled to arrive in 2025. This agreement will also see a significant deferral of capital expenditure and an extension of the use of existing aircraft in the Group's fleet. Throughout the 2019 financial year, the Group also expanded its network proposition, launching two new domestic routes, Perth-Hobart and Perth-Gold Coast (seasonal) and five new international routes, being Sydney-Hong Kong; Sydney-Wellington; Melbourne-Queenstown; Newcastle-Auckland (seasonal); and Darwin-Denpasar (seasonal). On 28 August 2019, the Group announced a number of cost base initiatives, including an organisational rightsizing program targeting a reduction of 750 roles and annualised cost savings of $75.0 million and the renegotiation of key supplier contracts targeting cost savings of $50.0 million. On 16 September, the Group announced that it had entered into negotiations with Affinity Equity Partners to buy back Affinity's 34.82% interest in the Velocity Frequent Flyer Group for $700.0 million. Virgin Australia Group | Annual Report 2019 15 Directors' report(continued) Operating and financial review (continued) Statutory results A summarised statement of profit or loss for the current year compared to the prior year is provided below. 2019 $m Revenue and income Net operating expenditure Share of net profit of equity-accounted investee Loss before net finance costs and tax 2018 $m Movement $m Movement % 5,827.1 5,420.7 406.4 7.5 (5,961.7) (5,473.0) (488.7) (8.9) - 3.5 (3.5) (100.0) (134.6) (48.8) (85.8) (175.8) Net finance costs (160.7) (152.6) (8.1) (5.3) Loss before tax (295.3) (201.4) (93.9) (46.6) (20.1) (451.9) 431.8 95.6 (315.4) (653.3) 337.9 51.7 Income tax expense Loss The Group recognised a statutory loss after tax of $315.4 million, a $337.9 million improvement compared to the previous year's statutory loss after tax of $653.3 million. The improvement is attributable to the decrease in tax expense of $431.8 million, following a $451.9 million tax expense entry in the previous financial year which included the derecognition of deferred tax assets of $511.4 million, compared to a $115.7 million derecognition in the current financial year. Refer to note B5 to the consolidated financial statements for further information in relation to taxation. The loss before tax of $295.3 million is a decline of $93.9 million compared to the previous year's loss of $201.4 million. This reflects higher fuel and foreign exchange costs of $158.8 million. While impairment losses on cash-generating units and other assets have decreased by $16.0 million compared to the previous year, net operating expenditure has increased. This is set out in more detail below. Refer to note D4 to the consolidated financial statements for further information in relation to impairment testing. Revenue and income increased by $406.4 million from $5,420.7 million to $5,827.1 million. This is the Group's highest ever full year revenue and income result and reflects a 5.7 per cent increase in Revenue Passenger Kilometres (RPKs)(1) and a 2.1 per cent improvement in Revenue Per Available Seat Kilometre (RASK)(2) over the same period. Net operating expenditure increased by $488.7 million from $5,473.0 million to $5,961.7 million. The increases are mainly volume-related increases in airport charges, navigation and station operations, commissions and other marketing and reservation expenses, fuel and oil and labour and staff related expenses as a result of increased RPKs. Catering costs increased by $35.6 million, mainly due to increased costs on international routes, launched during the year. Depreciation and amortisation expenses increased by $36.1 million mainly as a result of the capitalisation of additional aircraft assets and the impact of a weaker Australian dollar on depreciation of US dollar assets. In addition, $152.2 million of the $193.0 million increase in fuel and oil expenses is due to higher fuel prices. The Group's equity-accounted investee, Virgin Samoa Limited, ceased operations in the previous financial year and therefore the Group did not recognise any profit during the current financial year in relation to this investment. Refer to note F2 to the consolidated financial statements for further information in relation to investments accounted for using the equity method. Net finance costs increased by $8.1 million from $152.6 million to $160.7 million. Finance income increased by $9.3 million, mainly as a result of interest income from additional funds held on deposit. In addition, finance costs increased by $17.4 million, mainly due to the increase in interest-bearing liabilities. Refer to notes B4 and E3 to the consolidated financial statements for further information. (1) Revenue Passenger Kilometres or RPKs is a non-statutory measure derived from the number of paying passengers multiplied by the number of kilometres flown on Virgin Australia and Tigerair Australia operated flights. (2) RASK is a non-statutory measure derived from segment revenue divided by Available Seat Kilometres (ASKs) of the Regular Passenger Transport business. ASK is a non-statutory measure derived from total number of seats available for passengers multiplied by the number of kilometres flown on Virgin Australia and Tigerair Australia operated flights. 16 Virgin Australia Group | Annual Report 2019 Operating and financial review (continued) Underlying results The following table summarises the amounts that are excluded from the statutory results to arrive at the underlying and segment results. The Group's underlying loss before tax(3) was $71.2 million, a reduction of $135.6 million on the previous year's underlying profit before tax of $64.4 million. Restated(4) Statutory loss after tax 2019 $m 2018 $m (315.4) (653.3) 20.1 451.9 Add back: Income tax expense Share of net profit of equity-accounted investee Impairment losses on cash-generating units Restructuring and transaction costs and impairment losses on other assets Ineffectiveness on cash flow hedges Underlying profit/(loss) before tax (3) Add back: Net finance costs Segment EBIT(5) - (3.5) 152.6 120.8 70.6 148.5 0.9 - (71.2) 64.4 160.7 152.6 89.5 217.0 Movement % Segment results(5) The following table summarises the segment results for the Group. Restated(4) 2019 $m 2018 $m Movement $m Virgin Australia Domestic 3,914.9 3,682.0 232.9 6.3 Virgin Australia International 1,304.8 1,120.3 184.5 16.5 Revenue and income Velocity 411.0 372.0 39.0 10.5 Tigerair Australia 563.4 570.6 (7.2) (1.3) 133.4 215.8 (82.4) (38.2) Segment EBIT Virgin Australia Domestic Virgin Australia International (75.6) (21.7) (53.9) (248.4) Velocity 122.2 110.1 12.1 11.0 Tigerair Australia (45.0) (39.5) (5.5) (13.9) Restated(4) 2019 % 2018 % Movement points 3.4 5.9 (2.5) Segment EBIT margin Virgin Australia Domestic Virgin Australia International (5.8) (1.9) (3.9) Velocity 29.7 29.6 0.1 Tigerair Australia (8.0) (6.9) (1.1) (3) Underlying profit/(loss) before tax is a non-statutory measure. This measure is used by management and the Board to assess the financial performance of the Group. This non-IFRS information has not been audited or reviewed by KPMG. (4) The comparative has been restated to reflect the revised allocation of inter-segment transactions between Virgin Australia Domestic, Virgin Australia International and Velocity. The comparative has also been restated to recognise time value movement on cash flow hedges within segment EBIT. (5) Segment results include references to Segment EBIT which is a non-statutory measure per note B1 to the consolidated financial statements and Segment EBIT margin. Segment EBIT and Segment EBIT margin are used by management and the Board to assess the financial performance of the individual segments within the Group. Virgin Australia Group | Annual Report 2019 17 Directors' report(continued) Operating and financial review (continued) Segment results (continued) Virgin Australia Domestic Virgin Australia Domestic reported a Segment EBIT of $133.4 million, down $82.4 million from $215.8 million in the prior comparative period. Fuel prices and foreign exchange rate impacts contributed approximately $87.6 million to the decline. The segment EBIT margin also dropped by 2.5 points to 3.4 per cent. Total Virgin Australia Domestic revenue increased by 6.3 per cent to $3,914.9 million, supported by Yield(6) growth of 4.1 per cent and RASK improvement of 4.0 per cent. However, revenue growth was lower than expected in the second half of the financial year, with the timing of the Easter holiday period and the federal election contributing to weakness in the corporate and leisure travel sectors. Earnings performance was also impacted by costs associated with a 2.3 per cent increase in domestic capacity, airport fees, fuel costs, and catering service charges. In light of the adverse market conditions being experienced, the Group is assessing its network and capacity plans and conducting a targeted supply chain review. Virgin Australia International Virgin Australia International's revenue increased by 16.5 per cent to $1,304.8 million. Revenue and RASK improved on all of the Group's international routes, and load performance improved on all routes except for the Trans-Tasman, despite adverse revenue trading conditions in the second half of the current financial year. Capacity growth of 13.7 per cent was driven largely by the launch of services between Sydney and Hong Kong and new services on the TransTasman following the cessation of the Air New Zealand alliance in October 2018. Despite the strong revenue performance, Segment EBIT declined by $53.9 million to a loss of $75.6 million in the current financial year. The Segment EBIT excludes the impairment of the Virgin Australia International cash-generating unit of $47.6 million in the current financial year and $120.8 million in the prior financial year. The segment EBIT margin also dropped by 2.5 points to 3.4 per cent. Fuel price and foreign exchange impacts of approximately $51.9 million and an investment of $15.0 million in the new Hong Kong and Trans-Tasman routes contributed to the decline. Velocity Velocity reported a Segment EBIT of $122.2 million, an increase of $12.1 million compared to the prior financial year. Segment EBIT margin increased by 0.1 points to 29.7 per cent. The program increased revenue by 10.5 per cent to $411.0 million and attracted more than 680,000 new members. Velocity continued to drive growth opportunities and broaden its customer proposition. Member engagement remained strong, with redemption activity at its highest ever level in the current financial year. Tigerair Australia Tigerair's Segment EBIT declined by $5.5 million to $45.0 million compared to the prior financial year. Fuel prices and foreign exchange rate impacts contributed approximately $19.3 million to the decline, offsetting other increases. While revenue was down $7.2 million on the prior corresponding period, primarily due to industrial action, this was offset by a reduction in operational costs due to a 1.7 per cent reduction in capacity. The capacity reduction contributed a 0.5 per cent RASK improvement and 2.7 per cent improvement in Yield performance. The Segment EBIT excludes the impairment of the Tigerair Australia cash-generating unit of $105.0 million in the current financial year. (6) Yield is a non-statutory measure derived from segment revenue normalised for cargo operations on a consistent basis divided by Revenue Passenger Kilometres of the Regular Passenger Transport business. 18 Virgin Australia Group | Annual Report 2019 Operating and financial review (continued) Financial position A summarised statement of financial position for the Group for the current year compared to the prior year is provided below: 2019 $m 2018 $m Movement $m Movement % 2,165.3 1,979.5 185.8 9.4 Non-current assets 4,302.9 4,208.9 94.0 2.2 Total assets 6,468.2 6,188.4 279.8 4.5 Current liabilities 3,236.9 2,523.9 713.0 28.2 Current assets Non-current liabilities 2,612.4 2,569.5 42.9 1.7 Total liabilities 5,849.3 5,093.4 755.9 14.8 618.9 1,095.0 (476.1) (43.5) 2,238.5 2,238.9 (0.4) - Net assets Share capital Reserves Retained earnings Non-controlling interests Total equity 117.6 268.3 (150.7) (56.2) (1,766.4) (1,415.8) (350.6) (24.8) 29.2 3.6 25.6 711.1 618.9 1,095.0 (476.1) (43.5) Assets Cash and cash equivalents increased by $324.5 million to $1,740.0 million during the current financial year. This is the Group's highest cash balance recognised at the end of a financial year. Unrestricted cash increased from $1,000.8 million in the prior financial year to $1,330.3 million in the current financial year. Derivative financial instrument asset balances have decreased by $198.9 million during the period to $85.1 million. The settlement of fuel hedging gains that were unrealised at 30 June 2018 and the origination of new fuel hedging contracts resulted in a $214.7 million decrease in this asset. Increases in the value of forward foreign exchange contracts due to the weakening Australian dollar resulted in an increase of $15.8 million. Refer to note E7 to the consolidated financial statements for further information in relation to financial risk management. The Group received a final dividend from its equity-accounted investee, Virgin Samoa Limited, following the cessation of operations in November 2017. As a result, the carrying value of the investment was reduced to nil. Other financial assets decreased by $9.4 million mainly as a result of a decrease in maintenance reserve deposits due to an impairment of $8.3 million. Net deferred tax assets increased during the current financial year as a result of the reversal of a deferred tax liability recognised at 30 June 2018 in relation to unrealised hedge gains within equity and the tax effect of the Group's accounting loss. The Group applied a prudent approach in the current financial year in assessing the recoverability of the deferred tax asset and, accordingly, has derecognised a deferred tax asset of $115.7 million. The Group considers it probable that future taxable profit will be available against which the remaining deferred tax asset of $57.8 million can be utilised. Refer to note B5 to the consolidated financial statements for further information in relation to taxation. Property, plant and equipment increased by $171.1 million due to the following factors: -- $525.5 million of additions; less -- $93.1 million of impairment losses on cash-generating units; less -- $1.6 million of disposals; less -- $324.2 million of depreciation; less -- $17.2 million of transfers to intangible assets; plus -- $81.7 million of foreign exchange gains as a result of the weakening Australian dollar. Refer to note D2 to the consolidated financial statements for further information on the movements in property, plant and equipment. Intangible assets decreased by $36.3 million due to the following factors: -- $55.2 million of additions; less -- $49.2 million of amortisation; less -- $59.5 million of impairment losses on cash-generating units; plus -- $17.2 million of transfers from property, plant and equipment. Refer to note D3 to the consolidated financial statements for further information on movements in intangible assets. Virgin Australia Group | Annual Report 2019 19 Directors' report(continued) Operating and financial review (continued) Financial position (continued) Liabilities Current and non-current interest-bearing liabilities increased by $460.7 million mainly as a result of net proceeds from borrowings of $348.4 million and the effect of foreign exchange rates of $97.0 million. The proceeds from borrowings included the issue of $250.0 million in Australian dollar unsecured fixed rate bonds, which mature in May 2024, and new financing facilities secured against aeronautical assets. Refer to note E3 to the consolidated financial statements for further information on the Group's interest-bearing liabilities. Derivative financial instrument liability balances increased by $10.8 million during the period. The settlement of fuel hedging losses that were unrealised at 30 June 2018 and the origination of new fuel hedging contracts resulted in an $11.9 million increase in this liability. The remaining decrease in the balance relates to changes in the value of forward foreign exchange contracts due to the weakening Australian dollar. Refer to note E7 to the consolidated financial statements for further information in relation to financial risk management. Current and non-current provisions increased by $48.7 million. This includes an increase of $10.8 million due to the unwinding of discounted provisions and a $19.3 million increase due to the effect of exchange rate fluctuations. Refer to note C6 to the consolidated financial statements for further information on the movements in provisions. Current unearned revenue increased by $120.6 million, including an increase of $85.4 million in unearned passenger revenue as a result of increases in forward sales and an increase of $32.2 million in unearned loyalty program revenue. Equity Total equity decreased by $476.1 million during the current period mainly as a result of the statutory loss after tax of $315.4 million, decreases in the hedge and option time value reserves of $173.9 million in relation to the revaluation of derivative financial instruments and an equity distribution to non-controlling interests of $29.1 million. This was partly offset by an increase of $45.2 million in the foreign currency translation reserve as a result of the weakening Australian dollar. Net current liability position The Group's current liabilities exceeded its current assets as at 30 June 2019 by $1,071.6 million (2018: $544.4 million) including a current liability for unearned revenue of $1,262.7 million (2018: $1,142.1 million). Unearned revenue includes revenue received in advance which has been deferred in the statement of financial position until carriage is performed. The consolidated financial statements have been prepared on a going concern basis, based on the Group's cash flows for the current year and estimated profits and cash flows for future years. The Group has built its cash and cash equivalents balance at 30 June 2019 to $1,740.0 million (2018: $1,415.5 million), which includes an unrestricted cash balance at 30 June 2019 of $1,330.3 million (2018: $1,000.8 million), ahead of a major bond maturity in November 2019 totalling US$400.0m (A$569.8m). The Group also has $466.2 million of undrawn financing facilities in place as at 30 June 2019, including $86.4 million of standby multi-option facilities, $344.2 million of committed undrawn secured funding facilities (which will raise $174.6 million of additional cash after repayment of outstanding debt on the relevant assets) and US$25.0 million (A$35.6 million) of uncommitted facilities as at 30 June 2019. The Group is planning to undertake an additional fund raising prior to the debt maturity in November 2019 to provide additional liquidity and extend the debt maturity profile. Capital management is detailed in note E1. Management of liquidity risk is detailed in note E7. Operating statistics(7) Operating statistics (Group) Available seat kilometres (ASKs) million Passengers carried Revenue load factor % 2019 2018 Change % Change 51,203 48,575 2,628 5.4 24,786,063 24,520,743 265,320 1.1 80.2 80.0 0.2 0.3 Dividends No dividends were declared or paid during the year ended 30 June 2019 or during the prior corresponding year. Equity distributions of $29.1 million (2018: $47.1 million) were paid to non-controlling interests during the year. (7) This non-IFRS information has not been audited or reviewed by KPMG. 20 Virgin Australia Group | Annual Report 2019 Operating and financial review (continued) Likely developments The key areas of focus for the Group are outlined below: Undertaking a strategic review which will provide the foundations for the future direction for the company. This will include organisational right sizing and supplier reviews to reduce the Group's cost base as well as disciplined capacity and network management. Continuing to be the best value airline for both the corporate and leisure traveller, driving competition and offering the strong and unique Virgin experience and proposition that will appeal to all market segments. Maintaining a stringent hedging program to protect against adverse fuel and foreign exchange movements. Investing in the customer experience to deliver a rewarding travel experience for our guests. Significant risks and uncertainties The Group is exposed to a range of risks associated with operating in the domestic and international aviation industry. These include: Fuel price and foreign exchange trends, which can significantly affect costs, including fuel, aircraft and funding costs; Increases in airport, transit and landing fees, and the costs of ensuring air traffic security; Competition from other airlines and from alternative means of transportation; Government policy changes or decisions which could have an adverse impact on its business, operations an