Virgin Australia’s share price dipped below 10 cents on Monday – days after credit rating agency Standard & Poor’s downgraded its outlook to negative.
The drop represents an enormous fall from a high of $2.19 in February 2007. Virgin played down the developments, claiming any speculation of the future of the business was “untrue and misleading”.
Last week, Australian Aviation reported that the wider group announced a $97 million half-year loss and its intention to cut its Tigerair fleet.
Monday’s loss saw the already low price dip from 10.5 cents to just 9.7 cents, a fall of 7.6 per cent.
S&P said in a note last week, “We revised the outlook to negative based on our expectation that restrictions on inbound tourism from Chinese nationals will cut Virgin Australia’s earnings for fiscal 2020.”
Virgin responded, “Our S&P ratings remain the same, and there is no impact on our borrowing strategy or existing facilities.
“S&P’s updated outlook for the business reflects their view that the industry will continue to experience challenging conditions over the next six months due to the coronavirus.
“Virgin Australia maintains a strong cash position in excess of $1 billion, and our recent financial results last week showed an increase in revenue and passenger numbers.
“Any speculation about the future of the business is untrue and misleading.”
The drop reflects broader concerns that coronavirus could cause Australia and other nations to enter a technical recession.
Yesterday, Prime Minister Scott Morrison said the government would imminently announce plans to help struggling businesses.
PM Morrison said, “We will be focusing on ensuring that we keep Australians in jobs, we keep businesses in business, and we keep investment flowing during what will be a very challenging time for the Australian economy.
“It’s important that we understand that on the other side of this crisis when the health issues are addressed, there will be a bounce-back, and our plan will be ensuring that Australian businesses and jobs and the economy bounce back strongly.”
Last week, Australian Aviation reported that Virgin Australia Group would dramatically reduce its fleet by cutting seven A320s from its Tigerair brand by October 2020.
The news came after Virgin Australia chief executive Paul Scurrah announced a $97 million half-year loss, and added that the coronavirus outbreak would have a “significant effect” on the business.
Tigerair will soon operate just eight aircraft, less than half the number it had in its ranks two years ago.
Despite the loss, Virgin announced revenue was 1.5 per cent higher, at $3.1 billion, while revenue per available seat had improved by 2.5 per cent.
The airline is targeting $70 million in savings by cutting 750 head office jobs by the end of the year, and another $50 million through a supplier review.
As part of those changes, Tigerair will also cut five “unprofitable” routes from 27 April: Sydney to Adelaide, Cairns and Coffs Harbour; Melbourne to Coffs Harbour; and Hobart to the Gold Coast.
Scurrah said, “Today, we’ve made some important fleet and network changes that will help us improve our financial performance and respond to market conditions.
“There’s no doubt we are operating in a tough market, and we need to make sure our capacity deployment is disciplined to ensure our routes are profitable for our business.”