A perfect storm of natural disasters, bad weather and soaring fuel prices was blamed for an expected pre-tax loss of $80 million by Virgin Blue yesterday. As a result shares in the group comprising Virgin Blue, Polynesian Blue, Pacific Blue and V Australia fell 8%. The group said that the predicted loss, put between -$30 million to -$80 million, assumed now further increase in fuel prices and did not take into account an ineffective hedging programme.
Yesterday in early trading, shares in Virgin Blue slumped as much as 2.5 cents to 30.5 cents, which was close to their biggest one day drop in the past six months.
Virgin Blue chief executive John Borghetti warned investors in February that the second half of 2011 would be “challenging” and that the group had witnessed an “unprecedented number of significant events in an extraordinarily short period of time, including natural disasters and a sharp spike in fuel prices”. Events he said had “severely impacted consumer confidence, resulting in a slower than usual recovery in tourism”. Although Borghetti reaffirmed the fact that the airline had initiated an action plan to identify cost savings and revenue initiatives, including fuel surcharges and capacity reductions, “this will only partially offset the impact of these events on FY11 profit”, he said.
Borghetti plans to look to bolster its corporate and business traveler business in a bid to offset the group’s reliance on the leisure market.
Look to the Americas section to see the very interesting news on the state of the US market from the airline CEOs.