Virgin Blue forecast cut, but revival on the way
MORE competition on key routes and expectations of a softening leisure market have prompted Royal Bank of Scotland to slash FJ’searnings forecast by 20 per cent.
According to a report in The Australian, RBS lowered its forecast for the airline’s 2009-10 profit before tax by 20.3 per cent to $98.2 million but said it saw potential for growth and a doubling of pre-tax profit to $187.1m in fiscal 2011.
This potential upside included the corporate and government travel market share gains and the likely approval by US authorities of the joint venture with Delta Air Lines.
RBS analysts said that fewer hours worked during the economic slump and recent interest rate rises had led to weaker retail sales and a dampening of leisure demand.
"Given Virgin Blue’s exposure to leisure travellers, we see this weakness translating into reduced yields as the carrier stimulates demand in the short term by discounting fares," the analysts, who retained their buy recommendation, said in a note.
"However, with economic conditions improving, and the employment market tightening in (calendar) 2010, we expect wage growth to follow."
Philip Thornily
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