Virgin Blue shares bomb as leisure markets deteriorates

28th May 2010
Virgin Blue shares bomb as leisure markets deteriorates

Shares in Virgin Blue, Australia’s second largest carrier, fell as much as 30 per cent on Friday after it revealed that full-year profits could be as much as 75 percent lower than forecast only weeks ago.

The airline, which is part owned by Sir Richard Branson’s Virgin Group, said it had suffered from “rapid deterioration and increased volatility” in trading conditions since the start of the month, with domestic and international leisure travel hit particularly hard.

The airline said it expected to make a full-year net profit before exceptional items of A$20m-A$40m, down from its previous guidance of A$80m.

“Despite the sharp downturn, the short-haul business is still expected to make a net profit before tax and exceptional items in the order of A$100m,” it said in a statement.

The news comes only a month after Virgin Blue announced plans to buy 105 Boeing 737s, marking its largest fleet upgrade since its launch a decade ago.


The value of that deal was not disclosed but the carrier claimed that if met in full, the purchase would be Boeing’s “largest order in the past 18 months”.

But now the carrier is warning that the sudden fall in consumer confidence could lead it to cancelling aircraft leases.

John Borghetti, a veteran of Qantas for 36 years, took over as chief executive of Virgin Blue this month after out on the top job at Qantas to Alan Joyce.

He comes in at a difficult period for Australian aviation. Australian authorities have pushed through six interest rate hikes since last October and withdrawn stimulus spending in a bid to curb inflationary pressures, moves that have cut domestic consumer confidence and retail spending.

Earlier this year, Virgin Blue had done better than its rival when it reported half-year net profits of A$62.5m (US$53m), ahead of Qantas’s A$58m.


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