Toll seems stuck with Virgin Blue for now
The Sydney Morning Herald says that although Virgin Blue’s controlling shareholder, Toll Holdings remains intent on selling its stake in the airline in the longer term despite the failure of an almost year-long hunt for buyers, the transport company will be left holding its 62.7 per cent stake in Virgin for some time after the airline revealed late on Friday that it faces a cut of more than half in its full-year profit due to record fuel prices.
Toll’s managing director, Paul Little, also ruled out yesterday selling Virgin’s non-core assets such as its frequent flyer program or privatising the airline to combat the external headwinds.
“We won’t be dismantling the business and selling it off piecemeal. We will keep the business together and revisit its appeal from a valuation point of view into the future,” he told the Herald.
Virgin’s share price is expected to dive today following its profit warning after the market closed on Friday. It has also signalled an increase in ticket prices or another fuel surcharge to recoup the losses.
The country’s second-biggest airline now expects its annual after-tax profits to be no more than $100 million in 2007-08, compared with $216 million last financial year. The latest forecast includes about $40 million in development costs.
Virgin also warned that it will incur additional fuel costs of more than $120 million next year if jet fuel prices remain above $US135 a barrel. Mr Little said Toll would sit tight on its 62.7 per cent stake in Virgin until external factors – such as the increased fuel prices, – improved and it could attract a fair value for its holding.
“Our view is that we will now hold that business and just wait for the climate to be better towards realising the value of the business,” he said.
Virgin Blue’s managing director, Brett Godfrey, hinted in February that the carrier could follow Qantas’s lead and sell some non-core assets such as its Velocity frequent flyer scheme.
Mr Godfrey said at the time that Virgin was also mulling over finding a partner to help launch an ultra-low cost carrier in Australia to compete with Tiger.
But Mr Little yesterday indicated plans for a ultra-low-cost carrier were on hold while Toll and Virgin’s other major shareholder, Richard Branson, focused on maintaining the airline’s market share in the face of surging fuel prices and tougher competition from other carriers.
“At this stage our focus will be on running the business efficiently and trying to combat the high oil price.” “Whether we start other initiatives is probably dependent on how long Toll remains a shareholder in the business,” he said.
Despite Virgin’s share price more than halving in less than a year, Mr Little said Mr Godfrey still had the support of the airline’s board. “He still has our total confidence … I’m not going to speculate about Brett Godfrey’s career on a Sunday afternoon.”
Virgin closed down 1.5c at $1.11 on Friday. The stock has plunged almost 60 per cent in the last year.
By:The Mole
John Alwyn-Jones
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