Virgin Blue facing $75m loss analysts say
A report in The Australian says that Virgin Blue could lose $75 million this financial year if a new report is correct.
The report by Merrill Lynch lowers its net profit estimate for Virgin by a whopping 91 per cent, from a profit of $2 million to the $75 million loss, and says the 2007-08 year’s result is also expected to be down 14 per cent.
“Weak demand, highlighted by VBA’s 72.5 per cent load factor in May is the main reason,” analysts Kevin O’Connor and Nicholas Robinson said.
“There is also a downside to our financial year 2008 forecast as we do not know the spread of VBA’s fuel hedging through the year.”
The report is the latest grim forecast for Australia’s second-biggest carrier as it faces high fuel prices combined with a softening of some segments of the domestic market.
It has already moved to cut capacity and some unprofitable routes, although it has so far resisted a push to slash staff and is pressing ahead with moves to launch its international arm, V Australia.
Merrill Lynch’s latest note lowered the price target from 70c a share to 42c, arguing the valuation is warranted given the airline’s higher gearing, the belief it is currently losing money and the increased risk of dilution for equity raising.
Despite this, Virgin’s shares rose 5c to close at 50c a share.
The report also called for more capacity cuts at the carrier.
“Unless fuel prices fall from current levels and/or demand rebounds, then VBA’s planned capacity cuts will not be enough to keep it from losing money in financial year 2009 in our view,” the analysts said.
A report from Deutsche Bank on the Australia industry in general said it was difficult to see a silver lining for airlines in the new financial year.
It said that despite moves by incumbents Qantas, Jetstar, Virgin and Air New Zealand to introduce strategies such as cutting capacity and boosting fares, it expected profits to be down.
Noting that recent events had highlighted the cyclical nature of the airlines, it said this financial year could prove a “deep trough” in the cycle.
“At record WTI crude prices of close to $US140 a barrel plus the current production pressures on jet fuel refineries driving up refiner margins, we envisage financial year 2009 to be amongst the worst in aviation record,” analyst Cameron McDonald said.
However, Mr McDonald said the local carriers had comparatively strong balance sheets and he expected to accelerate various “strategic and business cost improvement agendas” to better position themselves competitively late in the 2009 financial year.
He also forecast that jet fuel pressures were likely to ease from the second half with refiner margins already showing some signs of falling.
“On this basis, we estimate the financials for financial year 2009 could potentially be the trough in the current aviation down cycle leading to normal earnings per share upsides from financial year 2010 onwards,” Mr McDonald said.
A Report by The Mole
John Alwyn-Jones
Vegas’s Billion-Dollar Secrets – What They Don’t Want Tourists to Know
Visit Florida’s New CEO Bryan Griffin Shares His Vision for State Tourism with Graham
Chicago’s Tourism Renaissance: Graham Interviews Kristin Reynolds of Choose Chicago
Graham Talks with Cassandra McCauley of MMGY NextFactor About the Latest Industry Research
Destination International’s Andreas Weissenborn: Research, Advocacy, and Destination Impact
Graham and Don Welsh Discuss the Success of Destinations International’s Annual Conference
Graham and CEO Andre Kiwitz on Ventura Travel’s UK Move and Recruitment for the Role
Brett Laiken and Graham Discuss Florida’s Tourism Momentum and Global Appeal
Graham and Elliot Ferguson on Positioning DC as a Cultural and Inclusive Global Destination
Graham Talks to Fraser Last About His England-to-Ireland Trek for Mental Health Awareness
Kathy Nelson Tells Graham About the Honour of Hosting the World Cup and Kansas City’s Future
Graham McKenzie on Sir Richie Richardson’s Dual Passion for Golf and His Homeland, Antigua
ADS PRO 
Qatar Airways offers flexible payment options for European travellers
Phocuswright reveals the world's largest travel markets in volume in 2025
Airlines suspend Madagascar services following unrest and army revolt
Digital Travel Reporter of the Mirror totally seduced by HotelPlanner AI Travel Agent
Cyclone in Sri Lanka had limited effect on tourism in contrary to media reports