AAP
Virgin Blue plunges on profit warning
Jan 19 16:22 AEDT
AAP
Investors dealt swift justice to discount airline Virgin Blue on Wednesday after the company warned that its full-year profit would fall up to 15 per cent short of last year due to sluggish demand from travellers.
Virgin shares plunged as much as 20 per cent to a record low of $1.60 after the warning just ahead of the market open. The shares later pared their losses to ended down 12.5 per cent at $1.74.
"Post-tax profit for the full year ending March 31 will be in the order of 10-15 percent below that achieved for the last financial year," the company said. Virgin Blue is 25 per cent-owned by Richard Branson's Virgin Group.
The airline, which is locked in a price war with Qantas Airways and its discount carrier Jetstar, said sluggish demand late last year was continuing. As a result, it had cut its estimated annual passenger numbers by 2.5 per cent.
Virgin's surprise earnings warning hung over the entire transport sector. Shares in Virgin's 46-per cent owner Patrick Corp ended down 4.5 per cent at $6.22, while Qantas shares slumped 3 per cent to $3.51.
However, CMC Group chief dealer Brian Griffin suggested the market had over-reacted to the announcement, noting that it coincided with a spike in world oil prices overnight to seven-week highs near $US50 a barrel.
"The fact is if a company isn't making money the market will punish you but I don't think it's the end of the world for Virgin Blue as a business model," he said.
"It has done wonders for domestic air traffic in Australia but there might be a slight return to reality in what a company can achieve within a two or three year period in terms of profitability."
Virgin Blue reported an interim net profit of $63 million for the six months to September 30, 2004, down 1.8 per cent on the previous corresponding half.
This is the second time Virgin Blue has announced a surprise revision to its earnings expectations.
At the annual general meeting in August, the company said pre-tax earnings for the four months to the end of July 2004 had fallen 22 per cent.
Virgin Blue, which specialises in no-frills flights, began operations in Australia in 2000 and was floated on the sharemarket in December, 2003.
However, it began running into tougher competition last year when Qantas last May launched its own separately branded discount carrier, Jetstar.
This set off a price war in cut-throat deals, including promotional fares as low as $9.
Virgin earlier this week began offering tickets from A$1 excluding taxes and surcharges, which will be sold in a daily "happy hour" promotion.
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