Virgin Australia has posted an $84 million first-half loss, down from a $23 million profit in the same period last year.

The airline says it had a pre-tax loss of almost $50 million, which excludes costs associated with its Tigerair Australia purchase ($18.4 million) and restructuring and other expenses of $49.9 million.

Virgin (excluding Tiger) says it outperformed Qantas in total group revenue growth and yield – Virgin Australia’s revenue was up 5.6 per cent to $2.22 billion.

However, Virgin also saw its costs rise 4.5 per cent, which it says is largely due to fuel and foreign exchange.

The airline also says the carbon tax added $27 million to its costs, which was not recovered from customers in the current competitive environment.

Virgin Australia’s chief executive John Borghetti says an increase in capacity by his airline and its rival Qantas is making domestic aviation unprofitable.

“The Australian aviation market continues to be impacted by the significant capacity growth which occurred during the 2013 financial year, compounded by weak economic conditions and the inability to recover the cost of the carbon tax,” he noted in the report.

“Consequently, the Australian domestic aviation industry has made a first-half loss for the first time in 20 years.”

The first-half of the financial year is traditional the strongest profit period for airlines, as it encompasses the revenue from Christmas and summer holiday bookings.

Virgin Australia says its domestic business posted an unaudited pre-tax profit of $25.7 million, down from a $57.4 million profit the same time a year ago.

The airline says its international division posted an unaudited $29.5 million pre-tax loss down from a $26.6 million profit last year.

Invast’s chief market analyst Peter Esho says the capacity war Virgin and Qantas have been fighting has been destructive to both.

“The future will be around the domestic capacity war, who will blink first? That’s what the market is asking, for now both stocks should be avoided,” he told the ABC.

“We still hold the view that Virgin is now majority owned and controlled by a group of international airlines that have a primary motive to become a lasting nuisance for Qantas.”

As was the case for Qantas, Virgin Australia Holdings will not pay shareholders an interim dividend.