Virgin Blue Sees Year Loss Due To New US Route

February 23, 2009

Virgin Blue, Australia's second-biggest airline, reported a first-half loss, as expected, as ticket prices fell to 17-year lows and fuel price hedges turned sour.

It reaffirmed it would probably report a loss this year due to its US expansion and scrapped its interim dividend, though chief executive Brett Godfrey said the group had no need to raise capital.

Bigger rival Qantas Airways raised AUD$500 million through a share sale earlier this month.

"The strategy is simply to horde cash -- planning for, but not expecting, a two-year downturn in this market," Godfrey told analysts at a briefing.

Like other airlines, Virgin Blue has been cutting capacity and jobs over the past six months to cope with a steep drop in travel and a fare war waged with Qantas' budget airline, Jetstar.

It also flagged it might sell up to AUD$150 million (USD$97 million) worth of assets.

Virgin Blue's new airline, V Australia, takes off on Friday, flying from Sydney to Los Angeles, a route dominated by Qantas and United Airlines. The launch was delayed by more than two months as a strike at Boeing held up delivery of its first plane.

"We still believe it's going to be a challenge for us to break even this year, primarily due to the investment in V Australia," Godfrey said.

The airline booked a net loss of AUD$101.4 million for July-December 2009, down from a net profit of AUD$113.3 million a year ago, hit by a loss of AUD$81 million after tax on its fuel price hedges.

While jet fuel prices fell sharply, the company's fuel bill rose 44 percent to AUD$400 million in the first-half largely due to hedging at higher prices and a weaker Australian dollar.

Its fuel prices are 74 percent hedged in the second half, dropping to 35 percent in the 2010 financial year.

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