Virgin Blue flew into the red today, reporting a net loss of $101.4 million in the six months to 31 December compared to a net profit of $113.3 million in the corresponding period a year ago.

The sharp but not unexpected reversal of fortunes for the group reflected the seriously high cost of launching V Australia on the Qantas dominated market in US flights, the hangover from record fuel costs and the effect of a collapsed Australian dollar.

The demand side of the equations hardly came into play in the period, although Virgin Blue’s CEO Brett Godfrey said some downturn had been apparent in November and December.

Using a cockpit metaphor the results which show how the airline was flying before the real economic turbulence kicked in last month include some bright red warning lights.

The net assets dial is reading $604.8 million compared to $925.3 million on 31 December 2007, and correspondingly net tangible asset backing per ordinary share is down to 53 cents compared to a previous 81 cents.

Godfrey pointed out that despite the decline in these vital signs the airline had positioned itself to take advantage of an economic recovery, and had no additional funding requirements through to fiscal year 2010.

He said he expected trading conditions to worsen in the immediate future, but that the airline was planning for a turnaround in activity in two years time.

“We have set ourselves up nicely for when the market turns our way,” he said.

“Our strategy is to horde cash.”

Godfrey also said he didn’t think the group would loose anything like the 400 jobs it had identified as surplus to needs in recent days because of moves to transfer people to new route initiatives by its low cost Pacific Blue subsidiary in New Zealand and to V Australia, which starts flights to Los Angeles this Friday.

Virgin Blue disgraced itself with a media handout this morning that didn’t mention the $101 million loss until page two of a statement headlined “underlying net profit of $60 million” and then only through its inclusion in a table.

Even then it fudged the harsh truth of the matter. The same underlying profit in the previous corresponding half was $193.3 million!

After the Qantas treatment of the Moody’s downgrade last Friday as a vindication of its management skills it seems that Virgin Blue has joined it in a pissing contest to see who can defy gravity the most in dealing with the new realities.

Peter Fray

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