Virgin Blue hit by fuel crisis, raise fares

Soaring prices of aviation turbine fuel has hit Virgin Blue, the low-cost airline based in Australia, hard. Virgin Blue, Australia’s second-biggest airline as well as the largest airline (by fleet size) with the Virgin branding, was founded by British businessman Richard Branson’s Virgin Group.

Brett Godfrey, chief executive of Virgin Blue, told a press conference in Sydney, Australia,“The fuel crisis – and it is a crisis as far as the industry is concerned – has swamped the industry to a magnitude greater than probably SARS (severe acute respiratory syndrome) and 9/11 combined.”

Godfrey presented a gloomy picture for the carrier for the next 12 months and indicated that the period was likely to be the most challenging in Virgin Blue’s 8-year existence.

Virgin Blue’s fuel bill is expected to rise by over $250 million in 2008-2009. Virgin Blue had spent $589 million on fuel in 2007.

The domestic market, Godfrey added, had been very tough compared with the international market, which had resisted a global slowdown.

Virgin Blue has warned that it will make a loss in 2008-2009 because of prohibitive prices of fuel as well as costs from its long-haul carrier, V Australia, which flies between Australia and the United States.

Virgin Blue –in which the billionaire Richard Branson holds a 25.5% stake – has announced a 55% drop in full-year profits to $98 million, mainly on account of fuel prices, which more than doubled over the past year.

Virgin Blue has said that it would omit a final dividend, and would review the payout only when conditions started getting better.

Virgin Blue earned a profit of $5 million in the second half of 2007-08, compared with a $90 million profit in the same period a year before.

According to aviation analysts, Virgin Blue is expected to suffer a net loss of nearly $37 million in 2008-2009.

V Australia is likely to be the biggest burden for Virgin Blue in 2008 – with V Australia expected to post losses of up to $65 million in its first year of operations.

In the opinion of Brett Godfrey, the long-haul carrier V Australia could take as long as 18 months to break even.

V Australia had, a week ago, got approval from regulators to operate 5 flights a week to South Africa.

Though the Virgin Group has the option to begin 3 flights a week to South Africa immediately, it does not expect to start services until its start-up date of October 2009, Godfrey said.

The launch of domestic services in New Zealand, the introduction of Embraer jet aircraft in February 2008, and a decision to expand The Lounge product at capital city airports contributed to considerable increase in operating costs.

Virgin Blue airline has already announced cuts in spending in 2008 to the tune of $50 million and increased domestic fares. Also, it will scale back growth, including delaying the delivery of new Embraers.

Virgin Blue has withdrawn 6 Boeing 737-800 planes from domestic services – with 4 of them repositioned with Pacific Blue and Polynesian Blue, and the other two being used as a source of spare parts.