Wirraway
28th Nov 2004, 14:33
Mon "Courier Mail"
Headwinds hamper Virgin Blue
Queensland Ink, by Anthony Marx
29nov04
IN a stunt with faintly erotic overtones, Sir Richard Branson shook up a bottle of champagne and then sprayed it all over a bevy of long-legged beauties wearing very short shorts and well-filled halter tops.
The women screeched and scattered while everyone gathered in the lobby of Brisbane's Riverside Centre had a laugh at the vintage Branson media moment with his air hostesses.
The canny British billionaire had good reason to celebrate last December, as his partly owned Virgin Blue Airlines debuted on the Australian Stock Exchange in 2003's biggest public float.
Premier Peter Beattie was on hand to lavish praise on the budget airline, which he had lured to its Brisbane base with a costly package of payroll sweeteners.
Investors had lapped up the mega-hype, enthralled with Branson's reputation and the Virgin brand to oversubscribe the float by 10 times. The $2.25 issue price capitalised the airline at $2.5 billion and the shares closed up 8 per cent on the first day of trading.
A heady Branson boasted that he and co-owner Patrick Corporation boss Chris Corrigan had raised enough capital on the partial float to last twice as long in any all-out price war with arch rival Qantas.
"It means the low-fare carrier in Australia can withstand one hell of a battle, and if Qantas want to take us on, we're ready to take them on. I suspect they'll realise it's a battle they can't win, so it won't happen," Sir Richard said.
As the one-year anniversary of the December 9 float approaches, no one at the airline is talking with such triumphalism any more.
Shareholders too have been keeping their champagne chilled for another day – and it could be a long wait. They saw the stock hit a high of $2.62 early this year and have watched it languish at below its issue price since April, eventually sinking to a low of $1.64.
It closed on Friday at $2.04, and most analysts do not expect it to recover any time soon because much of the future growth has already been factored in.
How did the blue skies turn stormy? The reality check for Virgin Blue can be summed up pretty easily: Jetstar and fuel.
Investors can't say they were not warned. Cautionary notes about competition, oil prices and other threats were tucked away in the fine print of the prospectus which may have gone unread in the public stampede for shares.
But it seems fairly clear that chief executive Brett Godfrey – at least publicly – underestimated the power and determination of Qantas to fight back with its budget carrier Jetstar, which was launched in May. Few believed that Qantas head Geoff Dixon would simply roll over as Virgin Blue snared 30 per cent of the Australian aviation market, even if such subsidiary airlines had a patchy record overseas.
Godfrey also appears to have miscalculated the amount of insurance he would need to protect against a surge in world oil prices, which he acknowledged this month had cost the airline an extra $100 million over the past year.
Virgin Blue had only 50 per cent of its first-half fuel costs hedged, and now has only 10 per cent covered in the current second half of the financial year. Beyond that, there is no hedging after July 2005, making it the most exposed airline flying in Australia.
It is a sign of how tough things are for Virgin Blue right now that market analysts generally welcomed this month's release of results for the September 30 half-year, even though net profit dipped almost 2 per cent to $63 million.
Several broking houses had predicted a 7 per cent slide in net profit after the shock 22 per cent fall in the first four months of the year. So they were relieved to find only a 2 per cent slide, even as Virgin Blue described its business outlook as "uncertain".
Citigroup Smith Barney aviation analyst Jason Smith described the performance as "encouraging" despite the impact of Jetstar, fuel costs and the airline's 39 per cent jump in passenger numbers due to increased capacity.
"Overall, we believe Virgin Blue Airlines has delivered a good result in tough circumstances and, in our view, remains well positioned for a better second half. That said, the 14 per cent reduction in passenger yields is concerning, with both Qantas and Jetstar likely to continue to expand capacity," Smith observed.
Peter Harbison, of the Centre for Asia Pacific Aviation, also concluded that the carrier had "weathered a difficult period remarkably well" and the result "speaks volumes for the resilience of this model".
Harbison echoed Godfrey's admission that the airline had entered a consolidation phase following its growth spurt since launching in 2001.
"This will consist to a large extent of targeting the higher-yielding markets and gaining more corporate accounts. This market, while increasingly cost-sensitive, is not nearly as sensitive as the wider discretionary market and therefore shows increasing resilience in the face of difficult conditions," Harbison said.
"Virgin is now moving towards being a hybrid rather than a mere low-cost, no-frills airline. This is a strategic direction which appears appropriate in the Australian market and allows it to position effectively between Qantas and Jetstar."
Indeed, the airline has already pushed up some business-oriented fares by $40 as part of an across-the-board review to reconsider ticket prices rather than simply driving up the existing fuel surcharge on all fares.
That follows the $29-per-seat price war with Jetstar earlier this year, which cost Virgin Blue about $15 million in revenue while it was increasing the number of flights in its 45-strong domestic fleet.
Despite the cut-rate competition, Virgin Blue's revenue spiked nearly 28 per cent to $787 million over the first half. Operating expenses swelled 31 per cent to $697 million, even as the airline retained what it said was the nation's lowest cost base.
Godfrey has expressed high hopes for several points of difference with Jetstar and Qantas in the months ahead, most notably the planned introduction of live satellite television with Foxtel and Austar for all seats starting in mid-2005. A self-check-in scheme is also envisaged, with the system now being trialled in Brisbane.
Godfrey has also spoken out forcefully about airport charges, which cost $150 million more a year than 2001 and account for 15 per cent of the airline's costs. He has called for a government review of the charges.
Plans are also well advanced for Virgin Blue to expand overseas, with joint-venture talks under way for service to China via the gambling mecca of Macau.
Yet, notably, Godfrey has refused to provide any guidance on expected full-year profit and revealed few details about the performance of overseas offshoot Pacific Blue.
ABN Amro Morgans has forecast full-year net profit of $171 million, up from $159 million last year. Others believe it will be higher, between $175 million and $180 million.
Investors, of course, will be looking for a reason to uncork their champagne. They will have a chance to share some bubbly with Branson when he jets into Sydney for a party on December 9 to celebrate the launch of the Virgin Atlantic service from Sydney to London via Hong Kong. But whether investors are in the mood to party remains to be seen.
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Mon "Courier Mail"
Fare war erupts across Tasman
Chris Griffith and Anthony Marx
November 29, 2004
TRAVELLERS are the winners in a new airfare price war which could make it consistently cheaper to fly from Brisbane to New Zealand than to Cairns.
The prospect of a trip from Brisbane to Christchurch or Wellington being less expensive than intra-state travel follows the start of a cutprice fares battle between Qantas and Virgin Blue's overseas offshoot, Pacific Blue.
It includes Qantas announcing a one-way Wellington fare (excluding taxes) of $189 – $37 less than Pacific Blue's.
Air New Zealand offshoot Freedom Air is also discounting fares, with one-way prices to Christchurch of $140.60 and to Wellington of $150.60, excluding taxes.
Pacific Blue's presence on the Tasman route was marked with the offer of Internet fares of $165.55 one way (excluding tax) to Christchurch and $226.30 one-way (ex-tax) to Wellington.
But the new kid on the block has attracted the attention of Qantas, which has hit back on the secondary routes targeted by Pacific Blue with deep discounting of its own.
Qantas yesterday announced its own discounted ex-tax one-way fares of $169 and $189 to Christchurch and Wellington respectively.
Qantas spokesman Michael Sharp last night said the trans-Tasman route had always been "extremely competitive".
However, if Pacific Blue chooses to undercut Qantas again, it could become cheaper to fly to New Zealand than to book a seat to Cairns, even at Qantas's red-e-Deal heavily discounted price of $152 one way.
Qantas's decision to undercut Pacific Blue adds another front to the price war in Australia, where Qantas offshoot Jetstar – and increased fuel charges – have made inroads into the profits Virgin Blue investors hoped to make in the carrier's first year following its float on December 9 last year.
Pacific Blue head of strategy and communication David Huttner said last night Pacific Blue was operating profitably.
"Pacific Blue announced a small profit on our trans-Tasman services, so we're quite happy to compete and we will continue to do so," Mr Huttner said.
"If the other players in the market are finding it hard to make it work, they probably need to rethink why they flooded the market in capacity (extra seats) in hoping to see us off."
Broking houses had predicted a 7 per cent slide in net profit for Virgin Blue after its shock 22 per cent fall in the first four months of the year, but the overall slide was only 2 per cent.
Virgin Blue's revenue rose nearly 28 per cent to $787 million over the first half, but operating expenses swelled 31 per cent to $697 million.
Analysts believe Virgin's 14 per cent drop in passenger yields is worrying, with Qantas and Jetstar likely to continue to expand capacity.
The Courier-Mail
=========================================
Headwinds hamper Virgin Blue
Queensland Ink, by Anthony Marx
29nov04
IN a stunt with faintly erotic overtones, Sir Richard Branson shook up a bottle of champagne and then sprayed it all over a bevy of long-legged beauties wearing very short shorts and well-filled halter tops.
The women screeched and scattered while everyone gathered in the lobby of Brisbane's Riverside Centre had a laugh at the vintage Branson media moment with his air hostesses.
The canny British billionaire had good reason to celebrate last December, as his partly owned Virgin Blue Airlines debuted on the Australian Stock Exchange in 2003's biggest public float.
Premier Peter Beattie was on hand to lavish praise on the budget airline, which he had lured to its Brisbane base with a costly package of payroll sweeteners.
Investors had lapped up the mega-hype, enthralled with Branson's reputation and the Virgin brand to oversubscribe the float by 10 times. The $2.25 issue price capitalised the airline at $2.5 billion and the shares closed up 8 per cent on the first day of trading.
A heady Branson boasted that he and co-owner Patrick Corporation boss Chris Corrigan had raised enough capital on the partial float to last twice as long in any all-out price war with arch rival Qantas.
"It means the low-fare carrier in Australia can withstand one hell of a battle, and if Qantas want to take us on, we're ready to take them on. I suspect they'll realise it's a battle they can't win, so it won't happen," Sir Richard said.
As the one-year anniversary of the December 9 float approaches, no one at the airline is talking with such triumphalism any more.
Shareholders too have been keeping their champagne chilled for another day – and it could be a long wait. They saw the stock hit a high of $2.62 early this year and have watched it languish at below its issue price since April, eventually sinking to a low of $1.64.
It closed on Friday at $2.04, and most analysts do not expect it to recover any time soon because much of the future growth has already been factored in.
How did the blue skies turn stormy? The reality check for Virgin Blue can be summed up pretty easily: Jetstar and fuel.
Investors can't say they were not warned. Cautionary notes about competition, oil prices and other threats were tucked away in the fine print of the prospectus which may have gone unread in the public stampede for shares.
But it seems fairly clear that chief executive Brett Godfrey – at least publicly – underestimated the power and determination of Qantas to fight back with its budget carrier Jetstar, which was launched in May. Few believed that Qantas head Geoff Dixon would simply roll over as Virgin Blue snared 30 per cent of the Australian aviation market, even if such subsidiary airlines had a patchy record overseas.
Godfrey also appears to have miscalculated the amount of insurance he would need to protect against a surge in world oil prices, which he acknowledged this month had cost the airline an extra $100 million over the past year.
Virgin Blue had only 50 per cent of its first-half fuel costs hedged, and now has only 10 per cent covered in the current second half of the financial year. Beyond that, there is no hedging after July 2005, making it the most exposed airline flying in Australia.
It is a sign of how tough things are for Virgin Blue right now that market analysts generally welcomed this month's release of results for the September 30 half-year, even though net profit dipped almost 2 per cent to $63 million.
Several broking houses had predicted a 7 per cent slide in net profit after the shock 22 per cent fall in the first four months of the year. So they were relieved to find only a 2 per cent slide, even as Virgin Blue described its business outlook as "uncertain".
Citigroup Smith Barney aviation analyst Jason Smith described the performance as "encouraging" despite the impact of Jetstar, fuel costs and the airline's 39 per cent jump in passenger numbers due to increased capacity.
"Overall, we believe Virgin Blue Airlines has delivered a good result in tough circumstances and, in our view, remains well positioned for a better second half. That said, the 14 per cent reduction in passenger yields is concerning, with both Qantas and Jetstar likely to continue to expand capacity," Smith observed.
Peter Harbison, of the Centre for Asia Pacific Aviation, also concluded that the carrier had "weathered a difficult period remarkably well" and the result "speaks volumes for the resilience of this model".
Harbison echoed Godfrey's admission that the airline had entered a consolidation phase following its growth spurt since launching in 2001.
"This will consist to a large extent of targeting the higher-yielding markets and gaining more corporate accounts. This market, while increasingly cost-sensitive, is not nearly as sensitive as the wider discretionary market and therefore shows increasing resilience in the face of difficult conditions," Harbison said.
"Virgin is now moving towards being a hybrid rather than a mere low-cost, no-frills airline. This is a strategic direction which appears appropriate in the Australian market and allows it to position effectively between Qantas and Jetstar."
Indeed, the airline has already pushed up some business-oriented fares by $40 as part of an across-the-board review to reconsider ticket prices rather than simply driving up the existing fuel surcharge on all fares.
That follows the $29-per-seat price war with Jetstar earlier this year, which cost Virgin Blue about $15 million in revenue while it was increasing the number of flights in its 45-strong domestic fleet.
Despite the cut-rate competition, Virgin Blue's revenue spiked nearly 28 per cent to $787 million over the first half. Operating expenses swelled 31 per cent to $697 million, even as the airline retained what it said was the nation's lowest cost base.
Godfrey has expressed high hopes for several points of difference with Jetstar and Qantas in the months ahead, most notably the planned introduction of live satellite television with Foxtel and Austar for all seats starting in mid-2005. A self-check-in scheme is also envisaged, with the system now being trialled in Brisbane.
Godfrey has also spoken out forcefully about airport charges, which cost $150 million more a year than 2001 and account for 15 per cent of the airline's costs. He has called for a government review of the charges.
Plans are also well advanced for Virgin Blue to expand overseas, with joint-venture talks under way for service to China via the gambling mecca of Macau.
Yet, notably, Godfrey has refused to provide any guidance on expected full-year profit and revealed few details about the performance of overseas offshoot Pacific Blue.
ABN Amro Morgans has forecast full-year net profit of $171 million, up from $159 million last year. Others believe it will be higher, between $175 million and $180 million.
Investors, of course, will be looking for a reason to uncork their champagne. They will have a chance to share some bubbly with Branson when he jets into Sydney for a party on December 9 to celebrate the launch of the Virgin Atlantic service from Sydney to London via Hong Kong. But whether investors are in the mood to party remains to be seen.
===========================================
Mon "Courier Mail"
Fare war erupts across Tasman
Chris Griffith and Anthony Marx
November 29, 2004
TRAVELLERS are the winners in a new airfare price war which could make it consistently cheaper to fly from Brisbane to New Zealand than to Cairns.
The prospect of a trip from Brisbane to Christchurch or Wellington being less expensive than intra-state travel follows the start of a cutprice fares battle between Qantas and Virgin Blue's overseas offshoot, Pacific Blue.
It includes Qantas announcing a one-way Wellington fare (excluding taxes) of $189 – $37 less than Pacific Blue's.
Air New Zealand offshoot Freedom Air is also discounting fares, with one-way prices to Christchurch of $140.60 and to Wellington of $150.60, excluding taxes.
Pacific Blue's presence on the Tasman route was marked with the offer of Internet fares of $165.55 one way (excluding tax) to Christchurch and $226.30 one-way (ex-tax) to Wellington.
But the new kid on the block has attracted the attention of Qantas, which has hit back on the secondary routes targeted by Pacific Blue with deep discounting of its own.
Qantas yesterday announced its own discounted ex-tax one-way fares of $169 and $189 to Christchurch and Wellington respectively.
Qantas spokesman Michael Sharp last night said the trans-Tasman route had always been "extremely competitive".
However, if Pacific Blue chooses to undercut Qantas again, it could become cheaper to fly to New Zealand than to book a seat to Cairns, even at Qantas's red-e-Deal heavily discounted price of $152 one way.
Qantas's decision to undercut Pacific Blue adds another front to the price war in Australia, where Qantas offshoot Jetstar – and increased fuel charges – have made inroads into the profits Virgin Blue investors hoped to make in the carrier's first year following its float on December 9 last year.
Pacific Blue head of strategy and communication David Huttner said last night Pacific Blue was operating profitably.
"Pacific Blue announced a small profit on our trans-Tasman services, so we're quite happy to compete and we will continue to do so," Mr Huttner said.
"If the other players in the market are finding it hard to make it work, they probably need to rethink why they flooded the market in capacity (extra seats) in hoping to see us off."
Broking houses had predicted a 7 per cent slide in net profit for Virgin Blue after its shock 22 per cent fall in the first four months of the year, but the overall slide was only 2 per cent.
Virgin Blue's revenue rose nearly 28 per cent to $787 million over the first half, but operating expenses swelled 31 per cent to $697 million.
Analysts believe Virgin's 14 per cent drop in passenger yields is worrying, with Qantas and Jetstar likely to continue to expand capacity.
The Courier-Mail
=========================================