Virgin clips owner’s wings

MELBOURNE - Australian transport group Patrick Corp, majority owner of no-frills airline Virgin Blue, says first-half net profit before one-offs rose 11 per cent as its rail and port units offset weaker airline earnings.

Operational earnings were slightly higher than expected and, with an improving outlook for Virgin Blue as oil prices ease, helped to send Patrick's shares up as much as 8 per cent yesterday.

Some of the buying was driven by investors who had sold the stock in anticipation of a disappointing result following a slew of profit warnings in the Australian market, one analyst said.

"The ports looked pretty good considering they had operational issues, particularly in Brisbane," said ABN Amro Asset Management analyst George Clapham.

"Their logistics business was much better than I thought."

Chief executive Chris Corrigan was upbeat on the outlook for Virgin Blue Holdings - founded by Sir Richard Branson in 2000 and 62 per cent-owned by Patrick - as it battles Qantas and its budget carrier Jetstar.

"I'm slightly at the optimistic end because I think there's a clear trend now for oil prices to come down for a while," he told reporters.

Virgin Blue, with about a third of the domestic market, was working on plans to broaden its appeal to business and Government travellers, which would help to improve its margins, said Corrsigan. "I'm reasonably optimistic about that business if we can contain the rapacious behaviour of the airports," he said, referring to fee increases at Australia's airports.

Capital expenditure nearly doubled to A$127.7 million ($135 million) in the first half, with high investment rates set to continue for at least 18 months to boost port, rail and logistics capacity.

About half of Patrick's earnings are from its ports, coastal shipping and stevedore operations, a quarter from Virgin Blue, and the remainder from its half stake in Pacific National, Australia's largest privately owned rail network co-owned by Toll Holdings.

Net profit before one-off items was A$105.9 million in the six months to March 31, slightly ahead of expectations. After one-off items, net profit fell to A$99.87 million from A$121.06 million.

Margin growth was hindered at the ports business as major work to upgrade its facilities interfered with operations.

Virgin Blue, hit by excess capacity, higher jet fuel costs and rising airport charges, contributed 28 per cent less to Patrick's earnings during the half.

The airline, in which Branson's Virgin Group holds a 25.6 per cent stake, said on Wednesday its annual net profit fell 13 per cent and would be lower again this year.

Patrick shares finished up 25Ac, at A$5.41.

- REUTERS