Virgin Blue to shed 400 jobs ....
Join Date: Jun 2004
Location: Idaho
Posts: 85
Likes: 0
Received 0 Likes
on
0 Posts
Could someone more financially savvy than me explain what this all means.
From what i can see, the VA startup and the fuel hedging are one off costs, therefore whilst the average loss maybe 4mil per month, that should not carry forward as these costs have already been written down. It looks to me that the underlying 60m profit and forecast 50m for the full financial year are valid assessments.
Am i missing something?
From what i can see, the VA startup and the fuel hedging are one off costs, therefore whilst the average loss maybe 4mil per month, that should not carry forward as these costs have already been written down. It looks to me that the underlying 60m profit and forecast 50m for the full financial year are valid assessments.
Am i missing something?
How long before VA realises a profit?
The bleeding of cash through VA will make the startup costs pale by comparison. You still have to run the thing. If I won a million dollars tomorrow, and then went out and bought my dream boat, I would still go broke because my income would not allow me to run anything except the Gen' set!
The bleeding of cash through VA will make the startup costs pale by comparison. You still have to run the thing. If I won a million dollars tomorrow, and then went out and bought my dream boat, I would still go broke because my income would not allow me to run anything except the Gen' set!
Join Date: Apr 2002
Location: Australia at the moment
Posts: 177
Received 0 Likes
on
0 Posts
I think 6100 is right.
I think if you take out the cost of V-Australia set up it looks reasonable, but certainly nothing to be proud of. Pax numbers have been heading south for awhile now ie at least for a third of the 6 month reporting period to end of 08So it is not that bad. Virgin is doing the right thing by cutting routes, parking aircraft and trimming staff (unless you are one of the staff trimmed of course), they have to; unfortunate as it is.
The market as of midday had the shares unchanged, so the market had factored all this in. The clever boffins as one poster said will poor over these results but I think they are not surprised by it all, even the lack of interim dividend, I suppose this was to retain cash on hand for the old war chest.
The next 6 months now that could be ugly for Virgin and indeed everyone. We seem to lag behind the rest of the world by 6-8 months so whatever you see happening there now will be going on here around September; and that is all rather nasty. Guess it is a case of wait and see.
I think if you take out the cost of V-Australia set up it looks reasonable, but certainly nothing to be proud of. Pax numbers have been heading south for awhile now ie at least for a third of the 6 month reporting period to end of 08So it is not that bad. Virgin is doing the right thing by cutting routes, parking aircraft and trimming staff (unless you are one of the staff trimmed of course), they have to; unfortunate as it is.
The market as of midday had the shares unchanged, so the market had factored all this in. The clever boffins as one poster said will poor over these results but I think they are not surprised by it all, even the lack of interim dividend, I suppose this was to retain cash on hand for the old war chest.
The next 6 months now that could be ugly for Virgin and indeed everyone. We seem to lag behind the rest of the world by 6-8 months so whatever you see happening there now will be going on here around September; and that is all rather nasty. Guess it is a case of wait and see.
Join Date: Apr 2006
Location: The Dog House
Posts: 160
Likes: 0
Received 0 Likes
on
0 Posts
Is it really that bad??
I dont know much about the business world, but the company has so much market share in Aussie, new planes, and a very cheap share price.
When the end is in sight of this economic down turn, wouldnt there be a long queue of large companies wanting to snap them up???
I dont know much about the business world, but the company has so much market share in Aussie, new planes, and a very cheap share price.
When the end is in sight of this economic down turn, wouldnt there be a long queue of large companies wanting to snap them up???
Join Date: Jan 2008
Location: australia
Age: 42
Posts: 39
Likes: 0
Received 0 Likes
on
0 Posts
rumour has it the fuel companies wont sell to vb on credit can anyone confirm??
I think its funny they are reducing their hedging from 80% at present and when fuel was at its historical high, down to 30% for 2010 when fuel is at its historical lows, they still havent quiet grasped the concept of hedging have they.
I think its funny they are reducing their hedging from 80% at present and when fuel was at its historical high, down to 30% for 2010 when fuel is at its historical lows, they still havent quiet grasped the concept of hedging have they.
Join Date: Feb 2007
Location: Melbourne
Age: 57
Posts: 628
Likes: 0
Received 0 Likes
on
0 Posts
Originally Posted by im sparticus
I think its funny they are reducing their hedging from 80% at present and when fuel was at its historical high, down to 30% for 2010 when fuel is at its historical lows, they still havent quiet grasped the concept of hedging have they.
Very rarely does the agreement have to do with the actual price because if that was the case then one side or the other would be locking in a less than optimal position because both parties generally have access to the same information and forecasts and react accordingly. Hedging is a "certainty" strategy, the ariline knows how to budget for fuel costs, the oil company builds in a baseline volume and price and knows what it has to achieve for the time period.
Join Date: Jan 2008
Location: Tallong NSW
Posts: 280
Likes: 0
Received 0 Likes
on
0 Posts
Virgin Blue goes red but not dead
Interesting to see what the papers will make of the VBA results. I was surprised the market didn't punish them, but maybe Simon Bartholomeusz is on the money in his item in Business Spectator.
http://www.businessspectator.com.au/bs.nsf/Article/Virgin-battens-the-hatches-$pd20090223-PJ8PC?OpenDocument&src=sph
Crikey quoted Godfrey as saying he didn't think all 400 jobs would go but from what others have said here a fair few of them might have gone already so that might be window dressing.
The same reporter in Plane Talking had a bit more to say and quoted some nasty figures which tally with the copy of the interim results you can get on the ASX site at Australian Securities Exchange - Stock Market Information, Stock Quotes - ASX which I found a bit more worrying than reading Bartholomeusz.
Ben Sandilands picked up Godfrey's claim that the 777 would undercut the A380 too.
His blog on this is at Virgin Blue is red, but far from dead - Plane Talking
I still think Qantas was mad not to get 777s and that Virgin's biggest mistake was stuffing around for several years longer than they should have to get theirs.
I reckon V Australia would have made a great head start if they had done this in 2007.
http://www.businessspectator.com.au/bs.nsf/Article/Virgin-battens-the-hatches-$pd20090223-PJ8PC?OpenDocument&src=sph
Crikey quoted Godfrey as saying he didn't think all 400 jobs would go but from what others have said here a fair few of them might have gone already so that might be window dressing.
The same reporter in Plane Talking had a bit more to say and quoted some nasty figures which tally with the copy of the interim results you can get on the ASX site at Australian Securities Exchange - Stock Market Information, Stock Quotes - ASX which I found a bit more worrying than reading Bartholomeusz.
Ben Sandilands picked up Godfrey's claim that the 777 would undercut the A380 too.
His blog on this is at Virgin Blue is red, but far from dead - Plane Talking
I still think Qantas was mad not to get 777s and that Virgin's biggest mistake was stuffing around for several years longer than they should have to get theirs.
I reckon V Australia would have made a great head start if they had done this in 2007.
Join Date: Dec 2001
Location: Australia
Posts: 197
Likes: 0
Received 0 Likes
on
0 Posts
BG on Lateline Business last night:
On further headline losses:
"Oh, look, we've said that - we've said that the guidance we've given right back in August of last year, reaffirmed in November and still in play today, is that it will be a challenge to make a profit this year for us, primarily because of the $65 to 70 million attributable to V, which was always planned, even at inception, to lose money for some 18 months. It's a heavy investment. It's an investment that we believe will still pay off for us. But it may not pay off in the next 12 months. It may be 18 months down the track before we start to see that really work. I think it'd be nice if you're trying to get me to say let's turn back the clock, absolutely. But we'd do a lot of things differently if we had that advantage of hindsight."
.....And on further capital raising
"Oh, look, there's a shareholder out there who holds over 25 per cent of the shares. He's made it very clear that he's not interested and doesn't believe that we need to look at a capital raising. I think I share that view. I certainly share it today. There are other avenues that are in train to ensure that we build on that cash position which, you know, is still fairly healthy. So, from our point of view, a capital raising is not on the backburner as we speak today. But, you know, to your point, I can assure you that if we see substantial and continued market redeterioration, every airline, every airline in this country will be looking to do the same thing again."
On further headline losses:
"Oh, look, we've said that - we've said that the guidance we've given right back in August of last year, reaffirmed in November and still in play today, is that it will be a challenge to make a profit this year for us, primarily because of the $65 to 70 million attributable to V, which was always planned, even at inception, to lose money for some 18 months. It's a heavy investment. It's an investment that we believe will still pay off for us. But it may not pay off in the next 12 months. It may be 18 months down the track before we start to see that really work. I think it'd be nice if you're trying to get me to say let's turn back the clock, absolutely. But we'd do a lot of things differently if we had that advantage of hindsight."
.....And on further capital raising
"Oh, look, there's a shareholder out there who holds over 25 per cent of the shares. He's made it very clear that he's not interested and doesn't believe that we need to look at a capital raising. I think I share that view. I certainly share it today. There are other avenues that are in train to ensure that we build on that cash position which, you know, is still fairly healthy. So, from our point of view, a capital raising is not on the backburner as we speak today. But, you know, to your point, I can assure you that if we see substantial and continued market redeterioration, every airline, every airline in this country will be looking to do the same thing again."
Join Date: Jun 2004
Location: Idaho
Posts: 85
Likes: 0
Received 0 Likes
on
0 Posts
I think its funny they are reducing their hedging from 80% at present and when fuel was at its historical high, down to 30% for 2010 when fuel is at its historical lows, they still havent quiet grasped the concept of hedging have they.
Yesterday 10:03
Yesterday 10:03
As it turned out, oil dropped, against all expectation and the hedge (insurance) was not required. But that is no different to the insurance most of us pay on our houses. For most it is a waste of money (in hindsight) but in the event that your house burnt down and you were uninsured, your personal company would left with a huge debt and no asset, therefore insolvent.
Hedging guards against this possibility, and it is expensive. Airlines are in the business of making money from flying aircraft, not hedging. Once management start factoring hedging in as a profit centre rather than an operating cost, you will know the company is in deep trouble.
Join Date: Jan 2008
Location: australia
Age: 42
Posts: 39
Likes: 0
Received 0 Likes
on
0 Posts
6100, if hedging is like insurance perhaps you can explain why vb reported a $200mil mark to market loss against there fuel hedging positions, according to your definition they should have only lost the premium, the setup of the hedge was very cheap maybe even free or maybe even gave them a net credit in exchange for increased or all of or even multiples of downward market risk!
anyhow fuel hedging is not an insurance policy, its about fixing and smoothing the cost of fuel, not freaking out and locking in when fuel gets unbearably expensive and throwing the strategy away when its not, for it to work your hedge has to be consistent throughout the price cycle.
anyhow fuel hedging is not an insurance policy, its about fixing and smoothing the cost of fuel, not freaking out and locking in when fuel gets unbearably expensive and throwing the strategy away when its not, for it to work your hedge has to be consistent throughout the price cycle.
Last edited by im sparticus; 24th Feb 2009 at 08:00.
Join Date: Oct 2008
Location: Sydney
Posts: 76
Likes: 0
Received 0 Likes
on
0 Posts
im sparticus
Hey Sparticus,
Remember having the conversation with me about hedging on the 'VB, how low can they go' thread'.
We were prattling on about options, swaps and collars. I thought collars were odd then and still think so. For VB, they didn't use them but swaps and the the swaps have come home to roost.
That is why there is such a dramatic loss on the hedged positions. Swaps = an unproteced short or long but with No premium. Massive downside if you get it wrong.
To get naked with shareholder funds in this way is about as bad as what happened over the road with the Allco deal.
tsalta
Remember having the conversation with me about hedging on the 'VB, how low can they go' thread'.
We were prattling on about options, swaps and collars. I thought collars were odd then and still think so. For VB, they didn't use them but swaps and the the swaps have come home to roost.
That is why there is such a dramatic loss on the hedged positions. Swaps = an unproteced short or long but with No premium. Massive downside if you get it wrong.
To get naked with shareholder funds in this way is about as bad as what happened over the road with the Allco deal.
tsalta
Last edited by tsalta; 24th Feb 2009 at 09:57. Reason: grammar
Join Date: Dec 2007
Location: Australia
Posts: 545
Likes: 0
Received 0 Likes
on
0 Posts
Arrogant - crew lose wages to pay for harbour party
It's one thing to hedge fuel - it's another to do it so late in the game at a level significantly higher than others - the other 'miscalculations' again prove that fiscal responsibility and governance are not attributes of Godfrey & the VB Board.
I have a family member who next month has been forced onto leave without pay ....in order to help "save the business".......
In receiving this news she also rec'd yet another "message from Brett" playing down the company's financial situation. Then she had the delight of watching the ferret Branson chirp in with his mindless meanderings ....[quote] ..."what recession"
To top it all off, while VB drivers and crew are hammered daily about cost cutting, taking leave without pay and the need for financial prudence ahead of more big losses - Godfrey & Co are spending up big hiring Cockatoo Island in SYD for a launch party tomorrow night.
Maybe the first of the 400 to go should be Godfrey.
I have a family member who next month has been forced onto leave without pay ....in order to help "save the business".......
In receiving this news she also rec'd yet another "message from Brett" playing down the company's financial situation. Then she had the delight of watching the ferret Branson chirp in with his mindless meanderings ....[quote] ..."what recession"
To top it all off, while VB drivers and crew are hammered daily about cost cutting, taking leave without pay and the need for financial prudence ahead of more big losses - Godfrey & Co are spending up big hiring Cockatoo Island in SYD for a launch party tomorrow night.
Maybe the first of the 400 to go should be Godfrey.
Thread Starter
Join Date: May 2008
Location: Over the rainbow
Posts: 10
Likes: 0
Received 0 Likes
on
0 Posts
6100 / Spartacus
Hedging is not insurance .....
Options are a little like insurance in that you will collect if your option "goes īn the money"
Straight forwards contracts are really just "fixing" the price for future consumption ... and yes Airtags nailed it when he mentioned VB came to hedging way to late in the game!!! What they should have done was lock in fuel prices against reasonable known forward revenues ....... to lock in a reasonable known profit forecast .......
A good airline, IMHO, would do a some fixed price forwards, a little options (including collars to reduce the option premiums), and leave some unhedged (say an amount equivalent to parking a few planes if you don't happen to fly them ... theres nothing worse than paying on a hedge for fuel you don't actually use!!)
And I bet they didn't even hedge the FX exposure of having the fuel hedges in USD .....
Hedging is not insurance .....
Options are a little like insurance in that you will collect if your option "goes īn the money"
Straight forwards contracts are really just "fixing" the price for future consumption ... and yes Airtags nailed it when he mentioned VB came to hedging way to late in the game!!! What they should have done was lock in fuel prices against reasonable known forward revenues ....... to lock in a reasonable known profit forecast .......
A good airline, IMHO, would do a some fixed price forwards, a little options (including collars to reduce the option premiums), and leave some unhedged (say an amount equivalent to parking a few planes if you don't happen to fly them ... theres nothing worse than paying on a hedge for fuel you don't actually use!!)
And I bet they didn't even hedge the FX exposure of having the fuel hedges in USD .....
Join Date: Jan 2008
Location: australia
Age: 42
Posts: 39
Likes: 0
Received 0 Likes
on
0 Posts
tsalta,
short put + long call (same strike) = synthetic long swap, same same does the collar still seem odd now?
to the hindsight economists, der VB hedged late so what its in the past, what we should be questioning is there hedging plan for the future and theirs is to reduce when the price of fuel is low and probably take out hedges again WHEN fuel takes off and they get squeezed by unbearably high prices, which by the book is not a hedging plan at all as you pay through the nose when prices drop of the highs and miss out on the savings when the price takes off again.
imo the key to getting the most out of hedging is not how much you hedge (%) or by what strategy (options/swaps/futures or straight out fuel hoarding) but to be consistent with your plan throughout the cycle.
short put + long call (same strike) = synthetic long swap, same same does the collar still seem odd now?
to the hindsight economists, der VB hedged late so what its in the past, what we should be questioning is there hedging plan for the future and theirs is to reduce when the price of fuel is low and probably take out hedges again WHEN fuel takes off and they get squeezed by unbearably high prices, which by the book is not a hedging plan at all as you pay through the nose when prices drop of the highs and miss out on the savings when the price takes off again.
imo the key to getting the most out of hedging is not how much you hedge (%) or by what strategy (options/swaps/futures or straight out fuel hoarding) but to be consistent with your plan throughout the cycle.
Last edited by im sparticus; 25th Feb 2009 at 07:08.
Join Date: Oct 2008
Location: Sydney
Posts: 76
Likes: 0
Received 0 Likes
on
0 Posts
certainly still seems odd
Hey Spart,
Yep, still seems odd to me.
The premium paid on the longs was definately more than that raised by going short puts.
Why pay a premium for a synthetic version of something which can be had for free? i.e. a swap.
tsalta
Yep, still seems odd to me.
The premium paid on the longs was definately more than that raised by going short puts.
Why pay a premium for a synthetic version of something which can be had for free? i.e. a swap.
tsalta
Join Date: Jan 2008
Location: australia
Age: 42
Posts: 39
Likes: 0
Received 0 Likes
on
0 Posts
because they wanted a price band not one fixed price, shesh, face it there is nothing that suggests they were only using swaps and that was the only cause of there mtm losses.
the facts are (we have been through there statement) that they used both swaps and collars (mainly collars) both setups have downside price risk so both are a contributing factor (mostly the collars) to there hedging losses.
so unless you have any real evidence to suggest otherwise besides "they didnt use collars take my word for it im a part time options trader" stop harping on about swaps.
the facts are (we have been through there statement) that they used both swaps and collars (mainly collars) both setups have downside price risk so both are a contributing factor (mostly the collars) to there hedging losses.
so unless you have any real evidence to suggest otherwise besides "they didnt use collars take my word for it im a part time options trader" stop harping on about swaps.
Join Date: Oct 2008
Location: Sydney
Posts: 76
Likes: 0
Received 0 Likes
on
0 Posts
Hey Spart,
You are a bit highly strung aren't you?
I don't really give a toss whether they used swaps, collars, condors, swirly swizzle sticks or any other exotic method of hedging.
The point is that the intention of hedging is to control the average cost of jet fuel. What VB embarked upon was gambling with shareholder funds on the futures market and is typical of the cavalier attitude displayed by the company.
If you have been through the statement so closely, would you mind explaining to me where the 60 million profit is? You are a better man than I if you can find it.
tsalta
You are a bit highly strung aren't you?
I don't really give a toss whether they used swaps, collars, condors, swirly swizzle sticks or any other exotic method of hedging.
The point is that the intention of hedging is to control the average cost of jet fuel. What VB embarked upon was gambling with shareholder funds on the futures market and is typical of the cavalier attitude displayed by the company.
If you have been through the statement so closely, would you mind explaining to me where the 60 million profit is? You are a better man than I if you can find it.
tsalta
