A couple of weeks ago we pointed out that with Qantas heading down the runway towards takeover, Virgin Blue would attract more interest from investors wanting some exposure to airline stocks and a proxy on oil prices.
Even though it’s 62 per cent owned by transport giant, Toll Holdings, VBA was already attracting some interest, with the share price stronger and much more notice being taken of the company’s financial performance rather than some of its marketing comments and stunts.
Interest perked up after Toll said late last year that it was hanging onto the VBA stake for a while longer, perhaps for quite a while longer and after an earnings upgrade in mid-December.
“Virgin Blue said today that the Company now estimates its reported profit after tax for 2006/07 will be in excess of $158 million, a 40% increase on the previous corresponding period result of $113 million.”
That greater interest was seen in the reaction to the news of VBA delivering on its previous earnings upgrade before the ASX opened: the shares were sold off by 19c to a low of $2.47 before the bounced and started climbing to end higher at $2.66.
The numbers in the various presentations looked believable, especially with costs such as jet fuel and staff, firmly under control and the new guidance for full year earnings was on the upside, so the shares rose.
Yesterday the airline posted an 81 per cent jump in first half earnings and said that full year net profit would be more than 60 per cent higher than in 2005-06.
Virgin Blue’s net profit rose 80.9 per cent to $124.3 million for the December half and it expects net profit for the 2006-07 financial year to be around $180 million, compared to the 2006 figure of $112 million. That’s a significantly above the December upgrade.
The company said in a statement that “The revised forecast reflects Virgin Blue’s increasing penetration of business traveller and government markets, uptake of new products and services and the airline’s new fuel hedging position with 95 per cent of fuel requirements capped at $US70 a barrel West Texas Intermediate (benchmark) for the remainder of the 06/07 fiscal year,” the carrier said.
Virgin Blue confirmed previous reports that it had started exclusive negotiations with Boeing Corporation to buy seven Boeing 777-300ER aircraft at a total list price of $US2.6 billion ($A3.31 billion) and options for a further six aircraft.
“Subject to successful completion of the remaining contractual negotiations, long haul operations will be launched during the second half of 2008,” Virgin Blue said.
First half revenues rose 16.7 per cent to $1.12 billion, with load factor higher at 82.2 per cent, up 2.3 points for the same period in 2005.
The airline will pay an interim dividend of two cents per share.
“This is a great result and a fantastic performance by our Virgin Blue Team,” chief executive Brett Godfrey said of the first half result.
“It puts us in a sound position as we enter our next expansion phase.”
VBA said it was planning to introduce a profit share plan to start this year.
“The program will take into account required annual shareholder returns and will be based on board approved annual targets,” the airline said.
“It will apply to Virgin Blue staff excluding management in existing company sponsored plans.”
More interesting was the suggestion that Virgin Blue might start a ‘no frills’ business to combat Jetstar and the presence of Tiger Airways of Singapore.
That’s a loverly irony given the way VBA portrayed itself at start up as a ‘low cost’ ‘no frills’ competitor to Qantas.
The suggestion shows how far VBA has moved up market and away from its origins. Can it return to the past and still make solid profits while incurring new costs?
