Virgin Australia forecasts a significant drop in its financial performance for the fiscal year through June 30, prompting the airline to plan capacity and network cuts.

In a trading update issued May 17, Virgin predicted its underlying earnings will be at least A$100 million ($68.7 million) down from the previous fiscal year. Since the carrier achieved an underlying profit of A$64.4 million in fiscal 2018, a decline of this level would sink Virgin to a loss.

The airline cited revenue uncertainty in the domestic market, and “fuel and foreign exchange headwinds” of more than A$160 million for the move.

Demand is weaker in both the corporate and leisure markets because of lower levels of consumer business confidence and spending. The upcoming federal elections have also dampened demand, the airline said.

Virgin predicts revenue growth of 6% for the full fiscal year, although the level of growth has slowed through the second half.

The Virgin Australia Group has responded by conducting a network review. This has focused on “short-term improvements including capacity and network reductions”; Virgin is also working to develop a new long-term strategy.

Paul Scurrah took over as the new CEO of the Virgin Australia Group in March. He has already moved to defer deliveries of Boeing 737 MAX aircraft and restructured senior management positions.

Adrian Schofield,