Virgin Blue sharply lowers guidance

Shares in Virgin Blue Holdings Ltd have plunged 27 per cent to a nine month low after the airline lowered full year profit guidance by up to three quarter.

The stock dropped 11.5 cents to 31.5 cents by 1053 AEST, the lowest since August 12, 2009.

The airline group now expects net profit before tax and exceptional items for 2009/10 to come in the range of $20 million to $40 million.

In previous guidance issued earlier this month, Virgin Blue said it had been expecting a result of $80 million.

"Since the guidance given earlier this month, we have continued to see rapid deterioration and increased volatility in the operating environment, particularly in respect of the leisure segment," Virgin Blue said in a statement on Friday.

The budget airline said this was consistent with the weakening trend seen recently in the broader retail market, as well as the "unexpected and sudden decline in consumer confidence" last month.

"The decline in demand has coincided with a period of increased industry capacity," Virgin said.

But despite the sharp downturn, Virgin said the short haul business was expected to make net profit before tax and exceptional items "in the order of $100 million" in fiscal 2010.

"The company will continue to monitor market conditions and, should these prevail, we have flexibility to adjust capacity through lease returns," Virgin said.

The airline group, comprising Virgin Blue, Pacific Blue, Polynesian Blue and V Australia, said it expected average airfares to increase by "over 10 per cent", but provided no time frame.

Virgin Blue posted a net loss of $160 million in 2008/09, but the company swung back into profit in the first half of 2009/10, recording net profit after tax of $62.5 million in the six months to December 31, 2009.

Friday's revised guidance is the second time the airline group has lowered expectations for 2009/10 earnings.

At the half-year results announcement in February, the company said it expected profit before tax and excluding ineffective cash flow hedges and non-designated derivatives to come within the range of $80 million and $100 million for 2009/10.

On May 3, when Virgin Blue released its operating statistics for March, the company said it expected profit before tax and exceptional items to be at the "lower end" of the $80 million to $100 million range due to weaker forward bookings and increased volatility.

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