Virgin Australia expects to make an underlying profit in the second quarter of this financial year.

Virgin in August unveiled a massive $355.6 million loss for 2013/14 following a fierce capacity war with rival Qantas, and outlined plans to cut costs by $1 billion over three years.

Chief executive John Borghetti says there are signs conditions are moderating in the domestic aviation market following the capacity war, which had put significant pressure on load factors and revenue.

“Whilst the continued uncertain economic environment and subdued consumer sentiment make it difficult for us to give guidance for the 2015 financial year, Virgin Australia expects to achieve an underlying profit in the second quarter of the 2015 financial year,” he told shareholders at Virgin’s annual general meeting.

Virgin also expects earnings improvements at its Tigerair Australia business, Mr Borghetti said.

He expects Tigerair to more than halve its underlying loss in the second quarter, compared to the prior corresponding period.

Tigerair is also expected to breakeven by the end of the 2016 financial year, six months earlier than forecast.

Virgin recently announced it was taking complete ownership of Tigerair Australia by buying the remaining 40 per cent.

Outgoing chairman Neil Chatfield said the operating environment for the Australian airline industry remained competitive and challenging.

“It is likely that we will continue to see uncertain global economic conditions and subdued consumer sentiment,” he said.

“While the domestic market continues to suffer from over-capacity, there is evidence that this is easing.”

Mr Chatfield, who recently announced his intention to resign after seven years as chairman, said capacity growth was beginning to moderate and there had been an improvement in fuel costs.

“We believe the business is well placed to significantly improve performance in the 2015 financial year.”

Qantas recently confirmed it made an underlying profit in the three months to September, and was on track to deliver an underlying profit in the first half of this financial year.

Virgin’s shares were half a cent higher at 40.5 cents at 1220 AEDT.