Virgin Blue market value slumps as shares tank

[Greg McDonald]

From NEWS.COM.AU:


VIRGIN Blue's market value has slumped to little more than $247 million.

And this is less than the price of one of the seven jetliners its V Australia offshoot is buying to fly the Pacific.

The airline's shares (vba.ASX:Quote,News) closed at 23.5 cents on Friday, having fallen about 24 per cent over the past three weeks.

On February 2, just days before chief executive Brett Godfrey took delivery of the first of V Australia's new extended-range Boeing 777s, the company's shares closed at 31 cents, valuing the business at $329.9 million.

The list price of one of the 350-seat extended range passenger jets is $414 million.

Virgin Blue's falling share price, coupled with its decision last week to cull 400 staff and ground six aircraft from its domestic fleet, has sparked questions about why Mr Godfrey's trans-Pacific plan has not been grounded.

Aviation analysts and industry officials say Mr Godfrey should have negotiated a deal with Boeing to push back his seven-aicraft order during these tough economic times.

They point out that V Australia's first Sydney-Los Angeles flight will take off next Friday when existing carriers Qantas and United Airlines have reported huge declines in traffic.

Qantas has admitted that high-profit premium travel - for first-class and business seats - is down 20 per cent on the route.

Demand from holiday travellers also has fallen 8 per cent since October.

But Mr Godfrey perceives flying the Pacific as the final piece in creating a round-the-world network for the Virgin airlines group.

By flying the Pacific, V Australia will link Virgin Blue Australia with Virgin America and Virgin International flights from the US and to Europe.

Clearly Mr Godfrey's high-risk V Australia gambit involves striking code-share arrangements to snare Australia-bound passengers from Virgin America and Virgin International.

The plan was devised a year ago when Virgin Blue shares were at $2.80 and the company's market capitalisation was $2.69 billion.

Now, with Virgin Blue's share value having plunged 90 per cent, Mr Godfrey and his board of directors are not only launching a new airline in difficult times but confronting a market where Qantas is flooding the Pacific with extra capacity, using its new 450-seat A 380 superjumbos.

At the same time Delta, the world's biggest airline, has announced it will begin flying the Pacific with Boeing 777s in June.

Virgin Blue is due to release its first-half report today.

[Greg McDonald]

How many people out there think VB is in serious danger of folding? The above article and many others I've read recently coupled with share price really places the airline in serious trouble.

I know all airlines worldwide are battling at the moment but VB seems to be doing it especially hard. God help us all if Qantas regains its monopoly on the Australian market!!

[Michael Morrison]

Folding = No

Takeover = Yes

I think they are worth more if their assets are all sold!

in their last report they had 600M cash in the bank and 3.3BN of assets and 2.3B of debt

Obviously aircraft values have come down, but I can't see them in too much trouble and I thinkt hey have a couple of years before they would be out of cash.

[Andrew P]

I note a Virgin Blue flight bound for Sydney has returned to Melbourne Airport safely after a tyre shredded on take-off. (http://www.smh.com.au/travel/virgin-blue-jet-shreds-tyre-on-takeoff-20090223-8eyk.html).

It said there were only 79 bods on board.

This is a reflection of the problem all airlines have, Monday morning flight between the 2 major Aussies cities and plenty of seats empty. (Monday mornings and Friday afternoon are prime time)

Not good news the loads.

Banjo

[Sarah C]

I note a Virgin Blue flight bound for Sydney has returned to Melbourne Airport safely after a tyre shredded on take-off. (http://www.smh.com.au/travel/virgin-blue-jet-shreds-tyre-on-takeoff-20090223-8eyk.html).

It said there were only 79 bods on board.

Banjo

Correct me if I am wrong but don't those Embraers operating on that route seat 105 people? Surely, 25 missing is not great but given the current financial situation, a load of 100% even in peak time for any airline would be an achievement.

As for VB, I don't think it is as dire as the article suggests. Godfrey stated they expect to make losses on VOZ for at least 18 months. Unless the internal information is worse than the media has, I don't think it is that bad.

[Max C]

Looked like an E170 on the news this morning.

[Sarah C]

Looked like an E170 on the news this morning.

So they hold 78 passengers, so add the crew and it is basically a full flight.

[Lukas M]

Half Yearly Report here. (http://www.asx.com.au/asx/statistics/showAnnouncementPDF.do?idsID=00929603)

[Andrew P]

So they hold 78 passengers, so add the crew and it is basically a full flight.

cant fill a 737 then??

[Michael Mak]

Looked like an E170 on the news this morning.
E170 indeed it was
http://www.smh.com.au/travel/virgin-blue-jet-shreds-tyre-on-takeoff-20090223-8eyk.html

[NickN]

cant fill a 737 then??


Or the 737's are full and the Ebraer fills the need for a few extra travelers each day.

[Marty H]

I note a Virgin Blue flight bound for Sydney has returned to Melbourne Airport safely after a tyre shredded on take-off. (http://www.smh.com.au/travel/virgin-blue-jet-shreds-tyre-on-takeoff-20090223-8eyk.html).

It said there were only 79 bods on board.

This is a reflection of the problem all airlines have, Monday morning flight between the 2 major Aussies cities and plenty of seats empty. (Monday mornings and Friday afternoon are prime time)

Not good news the loads.

Banjo

It was an E-170 VH-ZHC with 78 seats so it was a near full flight, the 79 would have inc crew which there are five.

[Nigel C]

I love this quote out of the SMH article...
Everyone is safe and well ... it went and did a loop, dumped some fuel and landed safely.

So, not only did the pax get an extra landing in their airfare, they then got to do some aero's along the way!
:D


I note this isn't the first time that an E170 has had an issue with tyres in recent times.

[Matt R]

I love this quote out of the SMH article...

I didn't think they could dump fuel either..

[D Chan]

This is a reflection of the problem all airlines have, Monday morning flight between the 2 major Aussies cities and plenty of seats empty. (Monday mornings and Friday afternoon are prime time)

I flown on the QF SYD-BNE Monday morning a few weeks back and the 767 was absolutely full and I just managed to squeeze in, so you can't generalise.

sure airline shares are undervalued, but are they the best options for potential investors? no they are not.
Qantas's share price was as high as 6 dollars now at 1.60. Virgin's was around 2.30-2.40 (correct me if I am wrong but I don't think I am that far off) and now down to 20-30 cents. Takes a brave man to buy into them but that is how wealth is created - you think it can't get any lower..

Why is Virgin Blue's share price so low? - the V Australia expansion at this economic downturn is one obvious answer. It doesn't matter what happened 6 months ago, it is the storm clouds brewing over the next 12 months that matters.

[Craig Murray]

I flown on the QF SYD-BNE Monday morning a few weeks back and the 767 was absolutely full and I just managed to squeeze in

I have flown BNE-SYD-BNE twice in the last fortnight (7/2 and 14/2). Our 767's on both BNE-SYD sectors departed with full J class cabins and only a handful of Y seats vacant.

The return SYD-BNE's were both on Saturday evening 737-400's and the loads were moderate on the 7th and light on the 14th.

And I dare say things were no different over at Virgin Blue on both weekends.

If we're looking to slam either carrier for not carrying sufficient "bot-botts on seats" I'm sure we can find plenty of city pairs to support the slandering of both major airline groups.

Times ARE tough but plenty of people are still travelling. As I've said in other posts, both airlines should be looking towards sustainable pricing structures with less emphasis on price leading fares simply to grab the headlines. Both Qantas and Virgin Blue offer the Australian travelling public excellent choices when it comes to air travel, let's hope both ride out the current conditions and emerge as viable carriers.

[Ricky T]

I believe both carriers are fairly adaptable in terms of find the suitable aircraft that would minimise the amount of empty seats and thus the cost of flying them empty.

I recently flew from SYD to BNE with QF (on 7/2) which was originally scheduled to be a B763 when I booked the flights. Sometime later, I noticed the flight has been downgraded to a B73H which was fine as I would imagine there aren't that wouldn't be that many people travelling on a Saturday afternoon. When I arrived at the gate to board, I was even more surprised when our flight is actually going to be operated by a B734.

In the end, there was 143 pax on board which would justify the B734/B73H but perhaps not the B763.

If we're looking to slam either carrier for not carrying sufficient "bot-botts on seats" I'm sure we can find plenty of city pairs to support the slandering of both major airline groups.

A good example I could think of is SYD-CBR, especially for QF.

[Damian N]

It would seem it's only a matter of time before someone is flushed out to buy either a large chunk or the whole of Virgin Blue. Whilst it might be hard to get credit and times are tough, at current prices it isn't a lot of money in the scheme of things. A cashed-up investor could come in, dump some aircraft, some routes, use the proceeds to pay down debt. A possibility would be to do it in co-operation with Sir Richard and delist the company. Buy the company back at 50 cents per share, then flog-it back to the market in 5 years time at $2.50 per share!

I seem to have read that REX has positioned itself with a shareholding in VB with the view that the share price doesn't reflect break-up value.