24-Dec-2009 12:31 PM

Virgin Blue reducing domestic capacity at a faster rate than Qantas; Allegiant shares downgraded

Analysis

Virgin Blue, which late last month upgraded its FY2010 outlook from 'breakeven' to 'profitability', reported a 0.5% increase in passenger numbers in Nov-2009 to 1.5 million, for the fourth consecutive month of passenger number improvements.

The increase was driven by a 31% increase in international passengers (to represent 14% of the total), which partially offset a 3.1% reduction in domestic passengers. (Comparatively, Qantas Domestic reported a 2.3% passenger increase in the month (to 1.4 million), with Jetstar Domestic's passenger growth exceeding this, at +4.9% (to 711,000).

Continuation of load factor improvement trend for Virgin Blue

Virgin Blue continued its load factor improvement trend of the past few months on both domestic and international services in Nov-2009, with a domestic revenue load factor of 84.6% (+3.5 ppts) and an international revenue load factor of 71.7% (+2.2 ppts). Overall load factors gained 0.9 ppts to 79.9%.

Virgin Blue passenger load factor growth (ppts): Nov-2008 to Nov-2009

Over 12 months of double-digit capacity increases, but reducing domestic capacity

Load factors improved despite a continued double-digit network-wide capacity (ASKs) increase of 20.4% in the month, for over 12 months of double-digit capacity increases, driven by a 151% increase in international capacity (this was driven in part by the launch of V Australia operations in Feb-2009).

However, domestic capacity (ASKs) slipped 7.1% in the month. Qantas reduced mainline Domestic's capacity by 4.8%, and Jetstar Domestic increased capacity by 0.8% last month.

Earlier this month, Virgin Blue suspended its regional expansion plans, calling on the Australian Government to resolve differing security requirements for aircraft. The carrier's Embraer E-Jets currently undergo different security screening requirements than Qantas' Q400 turboprop aircraft, forcing Virgin Blue to pay AUD20 per passenger for the screening.

For 2010, Virgin Blue stated it plans to optimise capacity "in line with market-by-market recovery". Virgin Blue added that it is currently looking into its 2010 capacity requirements, stating that although demand is improving in some markets, it is yet to improve across the board.

Virgin Blue RPK and ASK growth: Nov-2008 to Nov-2009

Allegiant shares downgraded to hold

In the US, Allegiant's shares were down 2.8%, after Jesup & Lamont Security downgraded parent, Allegiant Travel, from 'buy' to 'hold'.

Jesup & Lamont stated the shares "have hit our price target and we do not see a short term catalyst for raising our price target." The target price of USD48 was set in May-2009, with the shares closing at USD48.84 on 22-Dec-2009.

Jesup & Lamont also issued per-share earnings for 2010 of USD4.50, ahead of the Wall Street consensus of USD3.96, due to an expected increase in leisure and convention travel to the carrier's primary hub, Las Vegas, in 2010. The analysts added that while the carrier will face a need in coming years to replace its aging MD-80 fleet, the carrier is not expected to have difficulties finding replacement aircraft.

GOL completes 2010 aircraft financing

In South Ameirca, GOL's shares gained 3.7% yesterday, as the carrier announced it had secured a USD150 million credit line, to finance aircraft acquisition prepayments covering aircraft scheduled for delivery in 2010.

Ryanair to suspend domestic Italian operations due to security rules

Ryanair (shares down 1.0% yesterday) reportedly plans to temporarily suspend domestic operations in Italy from ten airports, effective 23-Jan-2010. The carrier cited concerns with security on domestic Italian flights, after a Nov-2009 decision by Italian aviation regulator, ENAC, to reduce the requirements on documentation needed to check-in for domestic services. The carrier believes the relaxation of identification document restrictions threaten flight security.

Improved outlook for Indian aviation

SpiceJet's shares gained 8.5% yesterday, on increasing optimism of a sustained rebound in demand, stable ATF costs and improved yields and fleet utilisation levels. See related report: India aviation outlook: A more favourable environment slowly emerging

Selected LCCs daily share price movements (% change): 23-Dec-09