Virgin Blue facing A$80m loss on fuel costs

Virgin Blue Holdings, Australia's second biggest airline, operates the Pacific Blue brand.

Virgin Blue Holdings, Australia's second biggest airline, is facing a full-year loss of up to A$80 million as it accounts for rising fuel costs and a spate of natural disasters on both sides of the Tasman.

The airline, which entered a trans-Tasman alliance with Air New Zealand, expects to make a pre-tax loss of between A$30 million and A$80 million this financial year, ending June 30.

Virgin said it faces an extra A$50 million from rising fuel costs, A$15 million from Christchurch's earthquake and some A$50 million from the Queensland floods and Cyclone Yasi.

"We have witnessed an unprecedented number of significant events in an extraordinarily short period of time, including natural disasters and a sharp spike in fuel prices," chief executive John Borghetti said in a statement.

"These events have severely impacted consumer confidence, resulting in a slower than usual recovery in tourism."

The profit downgrade is the second this year, and comes after Air NZ took a 15 per cent strategic stake in Virgin to protect the airlines' alliance.

Air NZ paid A$145 million, or 44 Australian cents a share, for the investment, and have made a paper loss of almost $40 million since the purchase.

Shares in Virgin were unchanged at 33 cents in trading on the ASX yesterday, valuing Air NZ's stake at almost A$109 million.

Shares in Air NZ fell 0.9 per cent to $1.10 in trading today, and have slumped more than a quarter this year.

New Zealand's national carrier expects to make a loss in the second half of this year due to rising fuel costs and the Japan and Christchurch earthquakes.

Earlier this week, Air NZ's Baa3 credit rating outlook was put on 'negative' from 'stable' by Moody's due to the difficulties facing the airline industry.