Goldman upgrades Virgin Blue rating

SYDNEY - Goldman Sachs JBWere has lifted its rating on Australian budget airline Virgin Blue Holdings Ltd. to "marketperform/hold" from "underperform/sell" as average fare yields improve on slowing market capacity growth.

"Our forecasts reflect an improving yield environment as market capacity growth slows," GSJBW analyst Paul Ryan said in a report. "Corporate market share gains represent upside."

Virgin Blue posted on Wednesday a 33 per cent fall in annual profit on higher fuel costs, as it had forewarned, but said it would pay shareholders A$262 million ($282.12m) in cash, drawing fire from the hostile bidder for its majority owner.

UBS, which maintained a "neutral" rating, raised its 12-month share price target by 10 cents to A$1.65, post the payment of a special dividend of 25 cents per share due on December 15.

UBS also upgraded its 2006 and 2007 earnings forecasts by 9.6 per cent and 1.8 per cent, respectively, after the dividend, on improving traffic figures and lower aircraft leasing costs.

Traffic figures from Virgin Blue and rival Qantas Airways Ltd. , which also owns budget carrier Jetstar, highlight an improving trend on aircraft loads and average fare yields, UBS analysts Stephen Wood and Anthony Rohrlach said in a report.

Shares in Virgin Blue last traded at A$1.82 on Wednesday.

- REUTERS