Virgin Blue's share price has been in a tailspin since the beginning of 2008, when it was sitting at just under $2.00, 10% below its December 2003 listing price of $2.25. Although at that point it was already down 30% from its record high of $2.78 in early 2007, the worst was yet to come for investors. Amid the GFC and a raft of profit downgrades in the first 6 months of 2008 VBA lost 75% of its value and has never recovered. This calendar year alone the share price has haemmoraged, dropping 30% since Jan 1 to be languishing at $0.315 even with today's 10.5% jump. Most of the 30% fall since January has occurred since the half yearly report and accounts were released to the market on 23rd February. Although Virgin Blue CEO John Borghetti tried to convince investors that it was "a very solid result" it seems they didn't buy his rhetoric, with shares tumbling 10% over the next few days and 22% in the eight weeks since results were announced. Today's news that Tiger Airways will be grounded was welcomed by investors. The grounding of Tiger Airways Australia - which has been a thorn in the side of Virgin - will cost the airline $1.5 million a week, the airline's parent company says. The grounding was good news for its listed competitors, with Virgin Blue surging three cents, or 10.53 per cent, to 31.5 cents, and Qantas soaring 12 cents, or 6.49 per cent to $1.97.
Analysts say the Civil Aviation Safety Authority's (CASA) suspension of Tiger Airways has put the future of the airline's four-year-old Australian operations in doubt. CASA decided to take Tiger's 10 Airbus A320 aircraft out of Australian skies on Friday night (AEST) as it believed the airline posed a "serious and imminent risk to air safety" if it continued flying. It was the first time the air safety regulator had suspended an entire airline's operations, with the only comparable action the grounding of Ansett's Boeing 767 fleet in 2001. Ansett collapsed six months later. Credit Suisse research analysts Anthony Moulder and Nicholas Markiewicz expressed doubts about Tiger's viability in Australia. "While management cite the earnings diversity for continuing to operate in Australia, we believe this a poor justification of Australian operations," the pair wrote in a research note. Mr Moulder said Virgin had most to gain from any withdrawal, given its flights overlapped most with Tiger. Sean Conlan, Macquarie Private Wealth believes Virgin offers significant upside if it executes and delivers on its strategy. However, the macro environment is still challenging. The Delta Airlines alliance was one of the notable outstanding moves. With this deal now in place, management can focus on rounding out the virtual global network by the end of the year, and it should be in a stronger position to approach potential partners to associate with the airline's loyalty program. Intersuisse's Cameron Bell has a sell on the stock, saying that the airline has experienced a tough run recently and that he doesn't expect things to improve anytime soon. "Competitively, it's struggling against Jetstar and even Qantas...the sector remains under pressure given the lacklustre domestic travel market and high oil prices." All in all, 2011 is shaping up as yet another tough year for Virgin Blue, with the company expecting "challenging" conditions over the second half. Natural disasters and soaring fuel costs forced Virgin Blue Holdings Ltd to issue another earnings downgrade a few months ago, its fourth in just 12 months. It announced that it expected to post a before tax loss for 2010/11 in a range between $30 million to $80 million assuming "no further significant increase in fuel prices and no material deterioration in the trading environment." In more bad news for Virgin, oil prices have increased a further 10% since that announcement. Whether at the high or low end of expectations, this is well below the $33.4 million pre-tax profit recorded in 2009/10. But not all analysts are bearish. According to broker consensus data, 2 brokers hold Buys on VBA, 3 Outpeforms and 5 have Holds, with just one Sell. The highest 12 month price target is $0.46, and the lowest 12 month price target is $0.33. The average 12 month price target is $0.396.
VBA Price at posting:
31.5¢ Sentiment: Hold Disclosure: Held
