Virgin Blue upgrades FY2010 outlook from 'breakeven' to 'profitable'; appoints new CCO

Virgin Blue Chairman, Neil Chatfield, at the carrier's AGM, stated (26-Nov-2009) the economic environment, both globally and within Australia, "remains uncertain" despite the carrier seeing some "encouraging signs of domestic recovery". However, Mr Chatfield stated that, based on current trading, the carrier expected to return to profitability in 2010, adding that it is "well well positioned to take advantage of any improvement in market conditions". Mr Chatfield also outlined the following details in his address:

• Demand outlook: Virgin Blue sees the domestic and outbound international market improving, with inbound international demand "lagging";
• Cost savings: In response to the impact of the Global Financial Crisis, Virgin Blue reduced planned capacity growth (-20%) and redeployed aircraft to new/uncontested routes. Overall cost savings also included ongoing pay freezes for management, elimination of 2009 short term cash incentives and a reduction in Directors' fees, contributing to a 4.5% reduction in Group CASK exc fuel in 2009, driven by a "solid result" in short haul operation, where the unit cost was reduced for the second consecutive year;
• Cash generation: Virgin Blue's capital management and asset realisation programme generated cash proceeds of approximately AUD133 million during the reporting period;
• Cash balance: Virgin Blue had a cash balance at 31-Oct-2009 of AUD777 million;
• Capital Raising: Since the end of FY2009, Virgin Blue completed an equity raising which increased cash reserves by a further AUD231 million, placing the Group into a "solid position to
  continue with existing strategies and to actively pursue opportunities when markets recover";
• V Australia: Mr Chatfield stated that while Virgin Blue Group has "recognised for some years the long-term strategic value to the group of establishing our own long-haul premium airline, there could not have been a more challenging time to launch the new venture". Mr Chatfield added that load factors exceeded 75% by Jul-2009, with the carrier expecting to benefit from the proposed Delta Air Lines JV (expected to be fully impleted in 2010) and improved aircraft utilisation and new routes including Phuket, Nadi and Johannesburg. V Australia's yields, meanwhile, remain under pressure, with fares approximately 50% lower than in FY2009;
• CEO replacement: Virgin Blue stated it has an arrangement in place for outgoing CEO, Brett Godfrey, to remain with the company until Dec-2010. A sub-committee of the Board has, meanwhile, commenced a formal process for recruitment of the next CEO, with the company appointing a global executive search firm to aid the process. The airline's COO, Andrew David, has not applied as a candidate for the position. The carrier added that it has appointed a new CCO, to join the company in 2010, although no further details were provided;
• Fuel/currency hedging: The carrier has approximately 56% of fuel requirements hedged for 2HFY2010. Approximatley 77% of opex is hedged for the same period;
• Fleet plan: The carrier ended FY2009 with 81 aircraft (35 leased and 46 owned), to increase to 87 aircraft (36 leased and 51 owned) by FY2010. As at FY2010, the carrier has 25 aircraft remaining on order. The carrier added that two E190s to be delivered in 2QFY2010 have debt financing, while three B737 aircraft to be delivered in 1HFY2010 are subject to sale and leaseback. The carrier also has deliveries for Calendar Year 2010 and 2011 which are mandate issued. [more - Presentation and Chairman Address]

Virgin Blue:"Virgin Blue and our shareholders have endured the most challenging year since the airline's launch nine years ago. As is well known, the past 12 months has been extremely difficult for our group and for the global airline industry in general, which reported its worst performance on record. In fact over the past two years more than 40 airlines have failed. Contributing factors have included, the continuing high price of jet fuel, the outbreak of swine flu which impacted travel volumes worldwide and the dramatic impact of the Global Financial Crisis on consumer and corporate spending": Neil Chatfield," Neil Chatfield, Chairman. Company Statement, 26-Nov-2009.

Virgin Blue: "With the strategic development opportunities for V Australia, continuing cost control throughout the short haul business and our improved balance sheet, the company is currently profitable and based on current trading we believe that the company will return to profitability in 2010 and that we are well positioned to take advantage of any improvement in market conditions," Neil Chatfield, Chairman. Company Statement, 26-Nov-2009.

Virgin Blue: "We told you about three years ago when we sought approval from our board for this project that we thought it would take about 18 months to reach profitability. We see no reasons at all at this time to extend that forecast," Brett Godfrey, CEO. Source: AFP, 27-Nov-2009.