Virgin dips on profit warning

Photo / Herald on Sunday

The value of Air New Zealand's investment in Virgin Blue fell by as much as $12 million before recovering yesterday after Virgin warned its first-half earnings would more than halve as a result of the floods in Australia.

Air NZ paid an average of A44c per share to acquire a 14.99 per cent stake in Australia's second largest airline last week in a deal worth A$145 million.

Virgin shares slumped as much as 5.9 per cent to A40c in early trading after the company said its after-tax profit for the six months to December would be between A$23 million and A$26 million - down from A$62.5 million a year earlier.

The shares bounced back to close down A1c on A41.5c.

Virgin blamed its profit drop on flood-weary consumers cutting back spending.

"The slowdown in consumer spending experienced across the discretionary retail and leisure sector, together with the recent floods in the eastern states, could have a significant impact on trading conditions over the coming months," the company said.

"The extent of this impact on revenue cannot be accurately estimated at this time, but could be up to A$40 million."

Virgin Blue is the latest company to detail the impact of flooding that has inundated much of Australia's east coast in the past two months, shutting mines, disrupting rail lines and closing roads.

Prime Minister Julia Gillard has called the floods Australia's most expensive natural disaster.

Operations at all ports, including the company's Brisbane headquarters, which was evacuated during the floods earlier this month, were returning to normal, Virgin Blue said. The company will report its half-year results on February 23.

Shares in Air NZ closed up 3c at $1.45 on the NZX.

- ADDITIONAL REPORTING: BLOOMBERG