Virgin Blue jolted the market this morning by making more money in the first half of its financial year than the three times larger Qantas Group.

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It’s the first time any Australian airline has outperformed Qantas in profit after tax terms in any reporting period.

Virgin Blue’s  CEO Brett Godfrey said it had also pencilled an in principle agreement with Boeing this morning for 50 new jets which it would use to extend its new position as having a larger domestic jet network in Australian than Qantas (which is a consequence of the expansion of Jetstar at the expense of the full service carrier.)

About 28 of those jets would replace expiring leases or aircraft that are already close to five years old, which is young for Qantas but very old in terms of Virgin’s emphasis on churning jets before they start requiring older aircraft maintenance procedures.

Virgin Blue would also bring back into domestic operation at least six jets it had sent on working holidays on regional international flights to cope with the need to defend and grow its Australian market share and it was seeking short term leases cover its ambitions pending delivery of new jets.

The groups domestic flights made $108 million PBT but its new long haul division V Australia lost — $39 million in the period.

Virgin Blue’s guidance remains for a full year PBT of between $80-110 million, and Godfrey was at pains to hose down speculation in analyst circles that it would have a better second half, matching similar caution by the Qantas group after it reported its first half year results last week.

The Virgin Group’s cash balances were $842 million at December 31, or $376 million more than a year earlier. However Godfrey said unencumbered or free cash was a more relevant measure of its strength, and had risen from $229 million to $513 million.

Godfrey said Virgin had greatly expanded its agreements to code share or interline with international airlines serving Australia, including striking a deal with Qantas oneworld alliance partner, Cathay Pacific.

In a press conference which is still underway, Godfrey said the airlines pursuit of the middle ground, between high fare full service operations that companies were increasingly deserting, and tight pack inflexible cheap seats like those offered by Jetstar and Tiger, had proven the right strategy on domestic routes.

“The middle is where the money is,” he said.