Virgin blue shares plunge

An AAP report today says that Virgin Blue Holdings Ltd shares have plunged to a record low after it forecast annual profit to halve amid rising fuel costs and tougher competition.

Toll Holdings Ltd, the airline’s largest stakeholder, also took a beating as the transport giant said it too would be affected and it would not offload its holding in Virgin.

Virgin Blue shares closed down 21.62 per cent, or 24 cents, to 87 cents, hitting a record low of 86.5 cents during the day.

The airline’s shares listed at $A2.25 ($NZ2.66) in December 2003.

Shares in Toll, which had been considering the sale of its Virgin stake, closed down $A1.43, or 15.08 percent, to $A8.05.

Australia’s second largest airline warned, after the market closed on Friday, its net profit would be significantly lower than last financial year.

Virgin now expects a net profit of no more than $140 million in 2007/08, excluding start up costs of $A40 million linked to plans such as the V Australia launch and a new fleet of regional jets.

That would compare to the $A216 million the company posted in 2006/07.

Virgin’s first half net profit fell 8.8 percent to $A113.3 million in February, as the company warned increased competition and high fuel costs would continue to impact the business.

Morgan Stanley analyst Philip Wensley today cut the airline’s price target from $A1.20 to 90 cents.

Credit Suisse analysts Anthony Moulder and David Bailey also reduced the carrier’s price target to $A1.44 from $A2.92, citing “the significant cut in earnings expectations”.

The analysts said Virgin Blue’s net profit guidance for fiscal 2008 implied a loss in the second half of at least $A4.9 million.

And they do not expect a turnaround in Virgin Blue’s fortune for some time yet.

“Based on the current oil price forward curve and the expectation of Qantas maintaining an aggressive competitive position domestically, we expect the current market conditions to extend into fiscal 2009,” Mr Moulder and Mr Bailey wrote in a note.

The analysts said they expected minimal impact from Virgin Blue’s additional fuel levy, which it may introduce next month to offset the headwinds.

It has flagged an increase in ticket prices of $A10-$A12 per sector.

“Previous fuel surcharges have been competed away domestically, and unless Qantas relax their aggressive competitive position and follow, which we do not expect, we see little benefit from such a surcharge,” the analysts said.

Toll said on Friday Virgin’s profit warning would impact its own earnings.

“The reduction in Virgin Blue forecast earnings will have a direct impact on the Toll group reported earnings as a result of Toll consolidating its 62.8 per cent interest,” Toll said.

But Toll managing director Paul Little said the current trading and outlook for Toll’s main transport and logistics business was strong and in line with plans, with earnings and cashflow performing well.

Toll also said it would hang on to its stake in Virgin until it could get a better price for the shares, as buying interest had undervalued the carrier.

The Centre for Asia Pacific Aviation (CAPA) said today Toll would be stuck with its stake for some time.

“Toll looks likely to be shackled to the airline for the foreseeable future, with Virgin Blue’s deteriorating profit outlook set to weigh on the transport and logistics operator,” CAPA said.

Sir Richard Branson’s Virgin Group is Virgin Blue’s second major stakeholder with a 25 per cent interest in the carrier.

By : The Mole from AAP