I think there's a lot more things encouraging the VBA share...

I think there's a lot more things encouraging the VBA share price than just oil. VBA fell to 15c on the back of not only higher fuel prices but GFC, swine flu, low consumer confidence/sentiment, intense competition, negative sentiment about airline stocks around the world, falling AUD and V Australia being launched at a bad time. A tsunami of negative events hit the airline industry.

Most of these things have changed. So, where are we now? Fuel costs have fallen dramatically, GFC has somewhat abated with credit markets thawing out, positive economic data, massive recapitalisation of balance sheets and deleveraging and so on. I'm not hearing to much about the Swine flu anymore. Surveys both in Australia and abroad indicate that consumer confidence/sentiment have rebounded strongly. The AUD is now the currency of choice especially when compared against the USD (the old carry trades kicked in - we give thanks for the RBA). With many airline companies refinancing or creating strategic relationships there is less of a concern that the industry is going to hell. V Australia is now well positioned to take advantage of any pick up o/s.

Specifically, over this time Virgin have lowered capital expenditure, initiated cost savings, sold some non-strategic assets, in a better capital position after the equity raising. Fuel and oil cost Virgin an extra $160 million in 2009 then 2008 or an extra 27%. Total operating expenses increased by 22% or $481 m, the extra cost of fuel made up 33% of the increase in operating expenses. Worth noting that comissions and marketing costs increased by 41%, but i believe that this was a one-off (associated with launch parties) and should fall this financial year. In other words operating expenses should look healthier in 2010 FY. Add in higher revenue and income, more effective cash flow hedges and derviatives and we hopefully have a positive EPS.

So what I'm trying to say, is that VBA is well positioned to benefit from the recovery in global and domestic growth. It won't be a straight line up and we'll hit some turbulence but based on what sent them crashing to 15c and the turnaround then VBA IS WORTH ALOT MORE THAN 42c and IMO more like $1. But as I've always been told, the market is always right.