AirAsia and Virgin Blue shares jump; RBS warns of continued challenge to Virgin Blue profitability

AirAsia’s share price gained 6.7% yesterday, as the market continued to react positively to the carrier’s positive first quarter earnings report, a stock upgrade from OSK Research (from “neutral” to “trading buy”) and the extension of the carrier’s tax allowance by the Malaysian Government.

The allowance means that 60% of AirAsia’s qualifying capital expenditure incurred from 01-Jul-2009 to Jun-2014 will enjoy permanent tax savings.

Also gaining yesterday was Virgin Blue, with a 7.1% gain (following a 6.6% fall on Wednesday and a 7.6% reduction on Tuesday).

Royal Bank of Scotland commented that, following a meeting with new Virgin Blue CEO, John Borghetti on 03-Jun-2010, it remains “underwhelmed, given the short-term challenges facing the business”. RBS added that it expects profitability to remain “challenged” over the next 12 months, adding, “we believe short-term momentum is against the stock and may push the share price lower”. However, on a more positive note, RBS commented, “we don’t view the business as a going-concern risk”. 

Also in the Australian market, shares in Qantas gained 2.4%. Merrill Lynch has maintained its “buy” rating on Qantas, with a target of AUD3.00, but warned that Qantas, like Virgin Blue, is suffering in the current market conditions, but noted it is "far less exposed" with its Jetstar product.

Asia Pacific selected airlines daily share price movements (% change): 03-Jun-2010