Virgin Blue Shares See the Biggest Slide in 21 Months

Submitted by Jim Thesiger on 28 May, 2010 - 15:22

The shares of Virgin Blue (VBA) fell by as much as 29 percent today as the company reduced its profit forecast by as much as 75 percent as the leisure travel went down at a significant rate. Richard Branson, who holds 26 percent ownership of the company today declared that the pre-tax profit is going to remain within the range of $20 million to $40 million in comparison with the latest guidance of $80 million. According to the airlines, the average fares would be weaker by 10 percent than what was expected this quarter since the leisure market saw a sharp decline. It is to be mentioned that the average fares are already at their lows. In a statement, VBA included that rapid fall and increased volatility could be noticed in the operating environment mainly in respect of the leisure segment both in the local and global arena.

Virgin Blue posted its biggest slide in 21 months by early afternoon as its stocks went down by 26 percent or 11.5 cents hitting 31.5c and during the morning it fell to 30.5c. A weak measure demand was tracked by the analysts for some time now in the local market of Australia and a number of experts warned that the yields were at risk. In a note IG Markets analyst Ben Potter stated that, volatility along with a fast decline in the operating environment was identified as the main reasons for the downgrade. However, it was not very clear how the company managed to reiterate the guidance only three weeks ago and now possibly be wrong by up to 75 percent.

Majority of the revenue generated by Virgin Blue comes from is local operations which also took a hit due to the losses incurred by V Australia, its international subsidiary. Although passenger loads were improving for V Australia, it is understood to be still struggling in the industry.