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Virgin Blue sold off as seats unfilled

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Nov 6, 2002
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Virgin Blue sold off as seats unfilled

By Brian Robins
January 20, 2005

Virgin Blue shares were slammed yesterday, skidding to a new low after a profit warning as the discount airline cut its forecast for the number of passengers it was hoping to carry this financial year.

As the carrier struggles to fill the expanded number of aircraft in its fleet, earnings in the year to March 31 are expected to fall as much as 15 per cent to $134.7 million compared with $158.5 million last year.

At their low point yesterday, Virgin shares fell to $1.60, before closing at $1.74, down 25c on Tuesday's close.

Virgin's woes spilled over to its large shareholder Patrick, which fell 29c to $6.22, with Qantas down 11c to $3.51 in sympathy.

The profit warning came just over a month after Virgin Blue managing director Brett Godfrey sold 5 million shares in the company at $1.88 a share, raising $9.4 million. This was the first time Mr Godfrey had sold shares in the company since it floated.

If that parcel of stock had been sold at yesterday's closing price, Mr Godfrey would have forgone $700,000.

Mr Godfrey was not available to discuss the reasons behind that share sale. However, a spokeswoman for Virgin Blue said that under a "gentlemen's agreement" at the time of the Virgin Blue float, Mr Godfrey could sell one third of his holding at each anniversary of the listing.

AdvertisementHe chose to sell less than he could have, she said, indicating that the sale was due to asset diversification, as Mr Godfrey has all of his net worth tied up in the company.

Virgin cited "sluggish demand" in November and December for the profit warning yesterday.

In the year to March 31, 2004, Virgin earned a net profit of $158.5 million on revenue of $1.36 billion.

"Passenger numbers for the full year have been revised downwards by approximately 2.5 per cent," Mr Godfrey said. "This deterioration is principally responsible for the decline in profit now expected for the year to March.

"The company is continuing with new and revised initiatives to retain existing, and attract new, passengers."

The continued expansion of Virgin's fleet, coupled with competition from Jetstar, resulted in Virgin filling less than three quarters of its seats in December, with the revenue load factor, which measures revenue for the seats on offer, falling to 73 per cent from 80 per cent in December a year earlier.

"Until we get some clarity on December, it is impossible to say whether it was discounting or demand driven," Virgin Blue's chief financial officer Keith Neate said of the unexpected decline in December. "We don't believe it's heavy discounting. We would normally see [December] as a stronger month."

A spokeswoman for the company denied that it was considering reducing its fleet as one means of improving its operating efficiencies, saying that the 45 per cent increase in capacity had taken longer than expected to fill.

"The 2.5 per cent drop in passenger numbers has translated to a substantial impact on the bottom line," she said. "There is [higher] fuel, the 45 per cent increase in fleet and the highly competitive environment.

"The things we are doing to increase yield include live TV and self-check-in kiosks."

Virgin carries more than 1 million travellers a month, although December's total of 1.08 million was well down from October's peak of 1.17 million.

The discount carrier has 49 aircraft in its fleet, up from 40 a year earlier. In early 2002, Virgin said it would triple the size of its aircraft fleet to 50 within five years, an expansion which is now effectively complete.



Jan 12, 2005
The moment they changed their "never-ever" promise to introduce fuel surcharge and C/C fees and recently re-formatting of airfares presentation (ie: instead of full price, went back to Airfare plus little note that says "taxes and surcharges" on the bottom), they are doomed.

Virgin Blue relies heavily on "keeping the bastards honest" perception so the moment they start behaving like QF, they're dead.

Think about their performance when they were first launched.
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