Virgin Blue downgraded; AirAsia capitalisation surpasses Malaysia Airlines

Virgin Blue shares remained unchanged at AUD 45 cents on Friday. The carrier was downgraded from "outperform" to "neutral" by Macquarie Group Ltd stating it believes the market is overestimating a recovery in earnings this financial year. Market consensus is for the airline to report a profit before tax of AUD112 million for the full year.

Macquarie Equities stated V Australia would likely operate at a loss for longer than expected as a result of concessions made to US regulators who had opposed its tie-up with Delta Air Lines placing a continued burden on Virgin Blue. Virgin Blue and Delta have guaranteed that they will not reduce services on the Australia-US route for two years. Virgin Blue also made big concessions to the Australian competition regulator in an attempt to overturn opposition to a joint venture with Air New Zealand on the trans-Tasman route.

Also on Friday, the carrier reported a 56.3% increase in group passengers to 1.6 million and an average load factor of 81.3% (+0.2 ppts). Domestic passengers stood at 1.4 million (+4.2%) at an average load factor of 81.4% (-2.4 ppts) while international passenger numbers increased 19.5% to 253,152 for an average load factor of 81.2% (+5.1 ppts).

Qantas benefits from strong AUD

Also in the Australian market, shares in Qantas remained unchanged on Friday. CEO Alan Joyce stated the carrier is benefiting from the Australian dollar strengthening to reach parity with the US dollar, as it makes aircraft and fuel cheaper. Mr Joyce commented: “It’s net positive for Qantas because we buy USD3 billion worth of fuel in US dollars. We have USD17 billion worth of aircraft on order; when we convert them to Aussie dollars, that’s cheaper.”

Skymark shares continue to strengthen on profit upgrade

Among the gainers, shares in Skymark Airlines continued to strengthen on Friday gaining 8.6% after the carrier earlier in the week stated it more than doubled its net income forecast for the year ending Mar-2010 citing strong sales.

SpiceJet shares perform strongly

Shares in SpiceJet gained 6.6% on Friday to be considerably above the INR57.76 in the ongoing open offer by Kalanithi Maran and KAL Airways (closing date 06-Nov-2010).  Shares in the LCC have gained 116% over the past year and is trading at almost 23 times its trailing 12-month earnings.

AirAsia capitalisation surpasses Malaysia Airlines

The strong rally in AirAsia shares have increased the LCC’s market capitalisation to MYR7.6 billion (USD2.26 billion) mark, surpassing Malaysia Airlines’ MYR7.5 billion. It boosted the carrier’s share price to an all-time high of MYR2.58 on 21-Oct-2010. Analysts covering the sector mostly gave an “outperform” or “buy” call on AirAsia. On Friday, shares in AirAsia gained 1.6% with Malaysia Airlines shares up 3.5%.

Asia Pacific selected airlines daily share price movements (% change):  22-Oct-2010