Virgin skies of blue?

Last year the airline made $95 million.

Virgin Blue issued 105.2 million shares in an institutional placement to raise $21 million and made a one-for-one non-renounceable entitlement offer seeking $210.4 million.

On all counts the raisings were successful suggesting that the market was more bullish on the airline’s future than many analysts have been.

The issue price of 20 cents was a 31 per cent discount to the share price at the time.

The Virgin Group’s investment ensures that it retains its 25.5 per cent stake in the airline.

One aspect that appears to have been lost on many analysts but not underwriters Credit Suisse (Australia) Limited and J P Morgan Australia Limited is that Virgin Blue has been doing very well and the loss is for a number of one-off issues such as a loss of $60 million in one-off establishment costs for V Australia.

CEO Brett Godfrey has been quick to assure the markets and industry that the Virgin Blue group of airlines is trading in a break-even position, an quite exceptional feat under the current economic conditions.

“Virgin Blue and [regional international off-shoot] Pacific Blue have contributed a $35 million profit but that has been off-set by a $30 million loss from V Australia the group’s new long range international airline,” Mr Godfrey told Contrails.

Mr Godfrey, has assured the markets that the airline would break even next year.

“We are cash flow positive overall and after the capital raising our cash balances will increase to $700 million.”

Nonetheless there are some who believe that Virgin Blue still needs a tie up with a major strategic partner, although one would have thought that Virgin Atlantic and Virgin America would major players

It also has other sale and lease back opportunities for its 737s if the need arises and has flagged that a further $200 million could be raise this way later this year if needed.

In March the airline raised $133 million from the sale and leaseback of three 737-800s in March.

At the presser on the capital raising CEO Brett Godfrey also announced that after 10 years at the helm he will step down from the airline which has been his baby from day one.

Despite what some critics and analysts may say Mr Godfrey has re-defined Australian aviation and stamped himself as an extremely successful airline executive.

Certainly he has played the game hard – as you need to do and his constant carping about finally bringing low fares to various markets has worn a bit thin over the years.

But there is no denying the success of the repetitive marketing formula.

Certainly the original single airline / single aircraft basic has been tested with three aircraft types and three airlines evolving for a variety of reasons.

If the Virgin Blue Group has a problem today, it’s identity.

And a solution isn’t readily apparent as long as Singapore Airlines is able to block the use of the Virgin name, by the Virgin Blue Group, outside Australia.

Maybe its time rebrand the whole airline group V Australia.

It is possibly also time to commit to a genuine premium economy section by taking out the first two rows of the aircraft with a curtain divider if the airline really wants to deliver on its glamorous billboard promises of some sort of exclusivity.

Contrails recent experience of travelling premium economy was nothing like the billboard with a group of surfers using the aisle and area surrounding the galley as a personal gym doing push ups no less.

While they were great young guys and excellent conversation many business people would not have been impressed.

There is no question that the Virgin Blue Group is a great organisation with energetic, talented and professional staff but just possibly there needs to be some tweaking and refinement to gain that extra yield.