Virgin Shrugs Off the Blues with Hefty Bali Business


Australian low-cost carrier Virgin Blue may be facing some revenue problems at home at the moment but its regional overseas arm, Pacific Blue, is increasing frequencies on its key Melbourne-Bali and Sydney-Bali routes to cope with rising demand.

Virgin last week issued its second downgrade in a month on the prime investment marker of earnings guidance (by 75 percent). The announcement last Friday slashed AUS$287 million (US$235 million) off its share price, a fall of 27 percent.

The problem relates to falling domestic leisure travel within Australia, which Virgin is seeking to counter by making new efforts to raise its share of the lucrative corporate travel market there.

For Pacific Blue, however, the outlook is universally rosy. It increased Melbourne-Bali services from three to four a week on May 7 and from August 18 will fly daily from there – the only airline offering daily direct services to Bali from Australia’s second-largest city.

Public affairs manager Colin Lippiatt told The Bali Times this week that from August 18 Pacific Blue would also increase its Sydney-Bali services, to four services weekly from three.

Pacific Blue also flies daily from Brisbane, Australia’s third-largest city, on the route abandoned by national flag-carrier Garuda, and from Perth, Bali’s most active Australian market. Adelaide-Bali flights operate three times weekly.

Virgin Blue, which began operating from its Brisbane headquarters in 2000 as the Australian arm of the worldwide Richard Branson Virgin aviation network, also flies in the southwest Pacific and New Zealand. Another brand, V Australia, operates transpacific long-haul services.

Founding CEO Brett Godfrey left the business in May. It was a long-planned departure. But the two earnings forecast downgrades in recent weeks have alarmed the share market.

The emerging financial picture has prompted new CEO John Borghetti to consider cutting the airline’s capacity and review unprofitable routes.

In briefings for market analysts last week, Virgin Blue blamed a steep drop in Australian domestic leisure travel and a sudden decline in consumer confidence for the lower pre-tax profit guidance of $20 million to $40 million.

Just over three weeks ago the company narrowed its pre-tax earnings guidance to the lower end of its $80 million to $110 million forecast. Borghetti replaced Godfrey as chief executive just five days later.

Virgin Blue chief financial officer Keith Neate said the airline, which generates 80 percent of its revenue from leisure travellers within Australia, had been hit by a 20-percent fall in discount economy fares in the past month and a drop in average fares.

“We were forecasting a certain fare for the last quarter and that was the basis that we’d put previous guidance out,” he said. “We’re going to achieve something which is 10 percent below that. And when you’re moving five million passengers in that quarter, it doesn’t take much to add up to $60-70 million.”

Neate blamed market volatility for the fact Virgin had not further downgraded its profit three weeks ago. He said the airline saw some softness last month but its forward bookings suggested business would stabilise.

“That stability hasn’t occurred and the expected recovery has not eventuated, and we’ve continued on a downward trend in June,” he said.

Neate also conceded that bringing the loss-making V Australia to profitability later this year would be “a real challenge,” despite an improving performance and increased load factors.

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