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.