Virgin Blue market value slumps as shares tank

Greg McDonald · #1 23rd February 2009, 09:11 AM

From NEWS.COM.AU:

Quote:

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 · #2 23rd February 2009, 09:14 AM

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 · #3 23rd February 2009, 09:24 AM

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 · #4 23rd February 2009, 09:25 AM

I note a Virgin Blue flight bound for Sydney has returned to Melbourne Airport safely after a tyre shredded on take-off..

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 · #5 23rd February 2009, 09:30 AM

Quote:

Originally Posted by Andrew P

I note a Virgin Blue flight bound for Sydney has returned to Melbourne Airport safely after a tyre shredded on take-off..

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.