Toll grits teeth as VB shares head south
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Toll grits teeth as VB shares head south
Will toll holdings continue to accept the continuous decline or will they cut their losses before they find themselves throwing cash into the operation to prop it up. This scenario may unfold when the true cost of expansion plans into a deteriorating economic climate become evident.
http://www.etravelblackboard.com/sho...nav=2&id=78306
Red exterior of Virgin Blue planes to match their balance sheet
Monday, June 02, 2008
The continuing decline of Virgin Blue is not only a concern to its 62.7 percent owner Toll Holdings, but there are warnings that the budget carrier may require additional investment to overcome rising fuel costs.
The $60 million net profit for Virgin Blue, forecasted by UBS, was slashed over the weekend to a $40 million loss.
The research arm of UBS added that the capital position of Virgin Blue could become ‘strained’ if fuel prices maintained their record high over $US160 a barrel.
Simon Mitchell, a UBS analyst, informed clients that “We believe Virgin Blue is currently losing money, and we forecast a full-year loss in [2008-09] on our $US150 per barrel jet fuel assumption.”
“At the current spot [price], a loss-making scenario looks even more certain,” he continued.
Last Tuesday witnessed an all-time high for the benchmark Singapore jet fuel price, of $US173.55, although it settled below $US160 at the end of the week.
Refining margins have risen even more than oil prices, which according to Business Day, has influenced the doubling of jet fuel prices over the past year.
The increasing capacity in the market is likely to further trouble Virgin Blue, as UBS notes the fleet enhancements on order for Jetstar, Virgin Blue, Qantas and Tiger Airways.
These orders are anticipated to increase capacity by 9 percent in 2008-09.
The recent announcements of Qantas and Jetstar to reduce capacity on certain routes is a path that Virgin Blue is expected to follow.
But Virgin Blue is prevented from the same flexibility of Qantas, who has older aircraft that can be retired and are fully depreciated. Virgin Blue possesses a comparatively new fleet, and do not have the same luxury of grounding aircraft.
The new strategy of Jetstar will involve the grounding of a jet, and cancellation of an order, but the budget carrier still plans to triple their fleet, with an incoming order adding 60 short-haul jets.
Virgin Blue requires $2.3 billion to fund the 33 jets on order for the carrier, and UBS has pointed to this as future strain on the balance sheet. The new Boeing 777’s purchased to service the V Australia long-haul airline are contributing to $800 million of this debt.
V Australia intends to commence flights to Los Angeles later this year.
The executive at Toll, Paul Little, inherited the stake in Virgin Blue when his company took over Patrick Corp in 2006. The acquisition has remained an ongoing concern for Toll, although the recent attempts to sell the Virgin Blue stake were shelved.
However, UBS claims that Virgin Blue may require fresh capital in 2009-10, which would exacerbate the already-tenuous situation with Toll.
Last Thursday was an all-time low for Virgin Blue on the ASX, hitting 68c. Their all-time high was in February 2007, at $2.75.
The UBS forecast of massive losses by Virgin Blue follows a JPMorgan report which predicted Virgin Blue posting a pre-tax loss of $626 million in the next financial year if oil reaches $US200 a barrel.
Source = e-Travel Blackboard: N.K
Red exterior of Virgin Blue planes to match their balance sheet
Monday, June 02, 2008
The continuing decline of Virgin Blue is not only a concern to its 62.7 percent owner Toll Holdings, but there are warnings that the budget carrier may require additional investment to overcome rising fuel costs.
The $60 million net profit for Virgin Blue, forecasted by UBS, was slashed over the weekend to a $40 million loss.
The research arm of UBS added that the capital position of Virgin Blue could become ‘strained’ if fuel prices maintained their record high over $US160 a barrel.
Simon Mitchell, a UBS analyst, informed clients that “We believe Virgin Blue is currently losing money, and we forecast a full-year loss in [2008-09] on our $US150 per barrel jet fuel assumption.”
“At the current spot [price], a loss-making scenario looks even more certain,” he continued.
Last Tuesday witnessed an all-time high for the benchmark Singapore jet fuel price, of $US173.55, although it settled below $US160 at the end of the week.
Refining margins have risen even more than oil prices, which according to Business Day, has influenced the doubling of jet fuel prices over the past year.
The increasing capacity in the market is likely to further trouble Virgin Blue, as UBS notes the fleet enhancements on order for Jetstar, Virgin Blue, Qantas and Tiger Airways.
These orders are anticipated to increase capacity by 9 percent in 2008-09.
The recent announcements of Qantas and Jetstar to reduce capacity on certain routes is a path that Virgin Blue is expected to follow.
But Virgin Blue is prevented from the same flexibility of Qantas, who has older aircraft that can be retired and are fully depreciated. Virgin Blue possesses a comparatively new fleet, and do not have the same luxury of grounding aircraft.
The new strategy of Jetstar will involve the grounding of a jet, and cancellation of an order, but the budget carrier still plans to triple their fleet, with an incoming order adding 60 short-haul jets.
Virgin Blue requires $2.3 billion to fund the 33 jets on order for the carrier, and UBS has pointed to this as future strain on the balance sheet. The new Boeing 777’s purchased to service the V Australia long-haul airline are contributing to $800 million of this debt.
V Australia intends to commence flights to Los Angeles later this year.
The executive at Toll, Paul Little, inherited the stake in Virgin Blue when his company took over Patrick Corp in 2006. The acquisition has remained an ongoing concern for Toll, although the recent attempts to sell the Virgin Blue stake were shelved.
However, UBS claims that Virgin Blue may require fresh capital in 2009-10, which would exacerbate the already-tenuous situation with Toll.
Last Thursday was an all-time low for Virgin Blue on the ASX, hitting 68c. Their all-time high was in February 2007, at $2.75.
The UBS forecast of massive losses by Virgin Blue follows a JPMorgan report which predicted Virgin Blue posting a pre-tax loss of $626 million in the next financial year if oil reaches $US200 a barrel.
Source = e-Travel Blackboard: N.K
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Me thinks its time to dust off the CV! Sand pit or HK, here we come? Weather the storm and see what happens, or eject now and miss the rush, thats the $40M loss question? Management wont be able to cope with this mess, they find it hard even when things are going well let alone when they are bad.
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Very interesting this situation. Toll's Paul Little is a ruthless operator and VB essentially represents a potential liability of around $ 390 m for the company. (Based on the reported 626 m x 0.627)
The capital requirements of the new VA operation combined with the possibility of further required funding to sustain the existing domestic airline will mean some serious boardroom decisions at TOLL.
I wonder if TOLL and the other shareholders will come to the party to restore the cash position to something that will enable it to keep trading ?
The capital requirements of the new VA operation combined with the possibility of further required funding to sustain the existing domestic airline will mean some serious boardroom decisions at TOLL.
I wonder if TOLL and the other shareholders will come to the party to restore the cash position to something that will enable it to keep trading ?
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I wonder if TOLL and the other shareholders will come to the party to restore the cash position to something that will enable it to keep trading ?
Virgin's free ride is over, now well see we'll see what sort of business person Godfrey really is !!.
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Never mind all that jumbo,
What about the hangar Party this year! what are they going to serve for drinks? Cheap goon?
Hey dirty deeds, Eject! Eject! Eject! (i had premature problem!)
What about the hangar Party this year! what are they going to serve for drinks? Cheap goon?
Hey dirty deeds, Eject! Eject! Eject! (i had premature problem!)
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How its worded
The way it reads is that instead of making 60 million they actually lost 40. So they got it wrong by 100 million? How can you possibly screw up that much? Maybe they only made 20 million but advertiesed it as a 40 million loss in projected earnings? Accountants can make anything a profit or a loss these days.
I just find it hard to believe that they could get it so wrong. Fuel only spiked 6 weeks ago. What on earth were they doing for the last 11 months?
I just find it hard to believe that they could get it so wrong. Fuel only spiked 6 weeks ago. What on earth were they doing for the last 11 months?
Virgin came in on the pigs back when Ansett went down.
Management were so busy telling each other how good they were that they missed the costly, inefficient beast that was being created in their own workforce.
Now caught between Qantas, Jetstar and Tiger, Virgin management are being subjected to something which is unfamiliar, and that is getting a business to shine in a market which is very competitive.
Hope we don't see another Ansett, that would be a great pity.
Management were so busy telling each other how good they were that they missed the costly, inefficient beast that was being created in their own workforce.
Now caught between Qantas, Jetstar and Tiger, Virgin management are being subjected to something which is unfamiliar, and that is getting a business to shine in a market which is very competitive.
Hope we don't see another Ansett, that would be a great pity.
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Perhaps they need to take a close look at their whole business model... they're caught in the middle of no where, not low cost, and not full service enough to attract the corporates which they think they are going to attract, so its all just a waste of money.
The way it reads is that instead of making 60 million they actually lost 40. So they got it wrong by 100 million? How can you possibly screw up that much? Maybe they only made 20 million but advertiesed it as a 40 million loss in projected earnings? Accountants can make anything a profit or a loss these days.
I know, the English language is awfully difficult
.
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I'm now preparing a front page article headlined 'VIRGIN BLEW'
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Interesting to see if Branson steps in when it's all but about to go under. He's a shrude business man, bails out when the writing is on the wall & gets back in at bargain basement prices.
Does anyone else here feel that a major change in the way we do things aviation wise in OZ isn't too far away? We are going to have to get smarter/clever if we are to see more growth in the this country.
Cw
Does anyone else here feel that a major change in the way we do things aviation wise in OZ isn't too far away? We are going to have to get smarter/clever if we are to see more growth in the this country.
Cw
It's worth having a read of Richard Branson's unauthorised autobiograghpy, written in the late 1990's.
Over to you Mr Godfrey, lets see how good you are now the pressure is on the airline industry with fuel costs, less demand for travel, staff wanting wage increases, three types of aircraft etc.
Over to you Mr Godfrey, lets see how good you are now the pressure is on the airline industry with fuel costs, less demand for travel, staff wanting wage increases, three types of aircraft etc.
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Interesting to see if Branson steps in when it's all but about to go under. He's a shrude business man, bails out when the writing is on the wall & gets back in at bargain basement prices.
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DJ needs to change their business model and just be a full service carrier and compete directly with QF, and then the other 2 low cost jetstar and tiger can compete for the low cost market... theres just no market out there for DJ it seems