A sell-off in Virgin Blue shares yesterday after the company surprised with yet another profit downgrade for the 2011 financial year.
In fact this is a loss update and that saw the shares down nearly 8% in early trading before they pulled back a tick to close down 6% at 31c, a loss of 2c on the day.
The airline told the ASX in a one page statement that high fuel prices, adverse weather and natural disasters would push its pre-tax loss to as much as $80 million in 2010-11.
The airline group, comprising Virgin Blue, Polynesian Blue, Pacific Blue and V Australia said it expected full-year profit before tax and excluding hedging ineffectiveness to be "in the range of -$30 million to -$80 million".
Yesterday’s fall took the fall since the start of the year for the shares to around 30%, against a market fall of around 2%.
But oil prices have risen sharply and the floods in and around Brisbane and north Queensland, plus earthquakes in Christchurch in February and Japan last week, have hit travellers’ sentiment, revenues and the bottom line in that order.
The airline said the latest forecast "assumes no further significant increase in fuel prices and no material deterioration in the trading environment".
At the airline’s 2010-11 half year results presentation in February, Virgin Blue chief executive said the second half would be "challenging", but declined to issue specific earnings guidance, saying it would be too early to do so.
In the statement yesterday, Mr Borghetti said: "We have witnessed an unprecedented number of significant events in an extraordinarily short period of time, including natural disasters and a sharp spike in fuel prices."
"These events have severely impacted consumer confidence, resulting in a slower than usual recovery in tourism."
Virgin Blue said that since February, higher jet fuel prices had added an extra $50 million to costs for the second half of 2010-11.
The airline also estimated the impact of the Christchurch earthquake at $15 million.
It had previously announced that the impact of Cyclone Yasi and devastating floods that swept through Queensland over Christmas and in early 2011 would cost $50 million.
"While VBA has initiated an action plan which identifies cost savings and revenue initiatives, including fuel surcharges and capacity reductions, this will only partially offset the impact of these events on FY11 profit."
And there were the financial losses from the booking problems late last year which have been compounded by several smaller incidents since. These could cost the airline millions of dollars when the costs are totalled and any settlement with the owners of the reservations system are worked out.
Virgin Blue posted profit before tax of $34.4 million in 2009-10.
Mr Borghetti said the current market conditions validated the airline’s plan to wean itself off the heavy reliance on the leisure market and look for a larger share of corporate and business travellers.
"We are more confident than ever that our strategy is the right one," Mr Borghetti said.
Air New Zealand, which has just bought a stake in Virgin Blue, is another airline doing it tough.
It told the market earlier this month that it expected a second half loss thanks to the impact of the quakes in Christchurch and Japan and higher fuel costs.
It said it no longer expects to be profitable in the second half and full year earnings "will fall below $100 million".
