Virgin Blue Holdings Ltd., the Australian airline whose shares have lost half their value in the last 12 months, hired Goldman Sachs to assess “expressions of interest”. The share price fell to the lowest level in more than four years losing 10% on 20Feb when they released their half year results in Sydney.
“The equity markets do not currently reflect the true underlying value of the business”, the airline, which has a market value of A$1.4 billion ($1.3 billion), said in a statement. “The board aims to complete the review within the next few weeks”, it added.
Virgin Blue, partially owned by U.K. billionaire Richard Branson, posted an 8.8% fall in first-half net income on costs to challenge Qantas Airways Ltd. on flights to the U.S. The airline also faces increasing competition on domestic routes from Tiger Airways, which started flying domestic Australia and to Singapore in November.
“They’re stuck between a rock and a hard place,” said Jason Teh, who helps manage about $5.3 billion at Investors Mutual Ltd. in Sydney. “The competitive environment is increasing at the bottom end of the market, and Qantas has a strong customer loyalty base at the higher end.”
The review may lead to Toll Holdings Ltd., Australia’s biggest freight company, selling the 62 percent stake in Brisbane-based Virgin Blue that it acquired through its 2006 takeover of Patrick Corp. Selling the stake would allow the company to boost investments in transport and logistics businesses, Chief Financial Officer Neil Chatfield said in August.
“In our view the current share price makes a sale difficult,” Matt Crowe, an analyst at JPMorgan Chase & Co. in Sydney, said in a Feb. 12 report to clients.
Virgin Blue, Australia’s second-biggest carrier, fell 10.5 percent to A$1.325 in Sydney, the lowest close since December 2003. Toll dropped 3.2 percent to a 14-month low of A$9.39.
Have a look at the current Virgin Blue share price
Virgin Blue Chief Executive Officer Brett Godfrey plans to start V Australia, a trans-Pacific service, in November, after Australia and the U.S. agreed to end restrictions on flights. Currently, only Qantas and UAL Corp.’s United Airlines fly between the two countries.
“The recent `Open Skies’ decision, which is very positive for V Australia, has added a new dynamic” to the sale review process, Virgin Blue said. Branson’s Virgin Group owns 25 percent of the airline.
The airline’s net income dropped to A$113.3 million in the six months ended Dec. 31, from A$124.3 million a year earlier, the company said today. Sales rose 8.1 percent to A$1.21 billion.
Revenue per available seat kilometer rose 5.2 percent in the first half to 10.10 Australian cents, the carrier said. The airline filled 83.4 percent of seats in January, compared with 83.3 percent a year earlier, it added.
Qantas, which is scheduled to report results tomorrow, said it flew 4.5 percent more domestic passengers in November, the last month statistics are available.
