Virgin Blue's stock suffers in weak key markets.
Steve Creedy, Aviation writer | March 10, 2009
Article from: The Australian
VIRGIN Blue shares reached a low of 18c yesterday after the airline sector was hit by signs of weakening demand in key overseas markets, including the US.
Shares in Australia's No.2 carrier showed no sign of pushing back above the 20c level and closed unchanged at 18.5c. Qantas shares fell 5.5c to $1.42.
The poor showings came after statistics on Friday revealed that 2 per cent fewer Australians travelled overseas in January.
Overall arrivals rose 6.4 per cent but key markets continued to weaken, with arrivals from Japan down 33.4 per cent and the US falling 9.3 per cent.
Outbound business travel also fell by 24.3 per cent in January, the lowest level since April 2003, although leisure travel rose 4 per cent.
There were also some signs that growth in short-haul overseas travel, while still up 4 per cent in January, was slowing.
At least one analyst believes these conditions will favour Virgin over Qantas.
Credit Suisse notes the smaller airline has relatively low exposure to long-haul travel and should continue to benefit from the relative strength of short-haul business travel.
But Virgin shares, which traded for $2.80 as recently as 2007, have continued to slip since the airline last month reported an interim net loss after tax of $101.4 million and a 65 per cent fall in underlying net profit after tax (NPAT) to $39.9 million,
While the current share price is below analysts' targets of 27c to $1.20, there are mixed views on what to do with the stock.
A Bloomberg survey shows recommendations include two buys, a sell, an underperform, an outperform and a hold.
The Centre for Asia-Pacific Aviation yesterday said Virgin's shares had fallen by more than a third since the beginning of the year because of "relentless pressures" at home and internationally.
It cited last month's comments by chief executive Brett Godfrey that Virgin was facing an exceptionally challenging and unprecedented operating environment.
"The entry of V Australia on the Pacific route is confronting severe headwinds as demand slips and competitor Qantas cuts its lowest fares to about a third of the pre-V Australia announcement levels," the Sydney-based aviation think-tank said.
"The situation is not helped by a need for the restructuring of the carrier's current shareholding, where Virgin Group holds a veto-controlling 25.5 per cent and is unlikely to withdraw at current price levels."