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Virgin Blue Holdings Limited (VBA) advised the market at its Half Year Results on 23 February that it expected the second half of the 2011 financial year to be challenging.
At the time, global fuel prices were at their highest since 2008 and over the past six weeks they have risen even further, adding an extra $50 million to the Company’s fuel costs for the second half of the financial year. The Christchurch earthquake in late February is also expected to have a $15 million impact. In addition the Queensland floods and Cyclone Yasi had a combined impact of approximately $50 million.
While VBA has initiated an action plan which identifies cost savings and revenue initiatives, including fuel surcharges and capacity reductions, this will only partially offset the impact of these events on FY11 profit.
Consequently VBA now estimates its full year profit before tax (excluding hedging ineffectiveness) to be within the range of -$30 million to -$80 million. This assumes no further significant increase in fuel prices and no material deterioration in the trading environment.
For the remainder of the current financial year the Company has fully hedged the underlying exposure to oil at a worst case rate of USD101.28 and has hedged 50% on the refining margin. We are in the process of increasing our cover for FY12 from 12% to 50%.
Virgin Blue Group of Airlines Chief Executive Officer and Managing Director, John Borghetti said: “We have witnessed an unprecedented number of significant events in an extraordinarily short period of time, including natural disasters and a sharp spike in fuel prices. These events have severely impacted consumer confidence, resulting in a slower than usual recovery in tourism.”
“These market conditions have further validated our Game Change Strategy which will see us less dependent on the leisure sector and reduce the volatility in our business. We are more confident than ever that our strategy is the right one.”