Virgin Blue’s shock announcement that it would take a $40 million hit due to floods and fragile consumer sentiment has sent the value of its shares – and the value of founder Richard Branson’s stake – down sharply in early trade.
Virgin Blue stock fell 5.9% or 2.9c in early trade, the stock’s biggest intra-day drop in more than four months.
That slump saw the value of the stake held by Branson’s Virgin Group drop by $17.6 million to $230 million in the space of an hour, although the shares have since gained some group to be at 41c at 11:35 AEDST, down 3.5%.
Virgin said in a statement to the ASX that net profit for the six months to December 31, 2010, was now likely to be $23-26 million, compared with a profit of $62.5 million in the prior year.
“The slowdown in consumer spending experienced across the discretionary retail and leisure sector, together with the recent floods in the Eastern States, could have a significant impact on trading conditions over the coming months,” Virgin said in a statement.
“The extent of this impact on revenue cannot be accurately estimated at this time but could be up to $40 million.”
The company’s results have also been impacted by the calamitous collapse of its reservations system in September 2010, which brought parts of the airline’s network to a halt and caused delays that stretched over three days.
Losses associated with the incident were put at $15-20 million, although Virgin is trying to recover these costs from the manufacturer of the system, IT group Navitaire.
The profit downgrade caps a dramatic month for Virgin Blue.
On January 20 the company announced it had signed a 10-year strategic alliance with regional airline Skywest that will allow the two companies to services regional centres.
Last week, Air New Zealand emerged with a 14.99% stake in Virgin Blue that many commentators believed may have signalled a takeover bid was in the offing. However, Air New Zealand says the investment is simple a strategic one.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
