labels: J P Morgan, News reports
Newspapers distorted Virgin Blue risk report: JPMorgan news
06 June 2008

Mumbai: Investment bank JPMorgan has refuted news reports suggesting controversial comments made by its research department that budget airline Virgin Blue was at risk of collapsing in the face of surging fuel prices and blamed the media for distorting its report.

Virgin Blue, Australia's second-biggest airline, should raise fares significantly if it is to remain afloat, a JPMorgan Chase report was quoted as saying.

JPMorgan analyst Matthew Crowe told Virgin officials that the media reports misinterpreted his report to claim that if jet fuel stayed at current levels, and Virgin Blue did not increase fares by at least 10 per cent, it would not survive.

Reports in the print media yesterday said Virgin Blue could go bust without a significant rise in the cost of airfares across it's domestic and international routes.

The reports also said Virgin would run out of cash soon if it does not make dramatic hikes in airfares.

"A 5 per cent rise is not enough to cover fuel costs. A $500 million equity injection would buy some time in hope that fuel costs fall but if fuel did not fall Virgin Blue on our analysis would eventually become insolvent despite the equity injection,'' the JPMorgan report was quoted as saying.

With the price of crude oil ruling at $140 a barrel, the bank said, Virgin Blue may need to hike fares by at lease 10 per cent to keep alive.

The report said if high fuel prices persisted, an equity injection of $1 billion would also not help keep Virgin Blue airborne.

They said two back-to-back 5 per cent fare rises would save the company and reduce the need for an equity injection, adding, the resulting growth profile may not be attractive, with estimated earnings in fiscal 2015 still below fiscal 2007.

Virgin Blue, 62 per cent-owned by Toll Holdings, operates New Zealand's Pacific Blue.

Virgin Blue slashed its 2008 earnings forecast in April as jet-fuel prices more than doubled in the past year. It increased fares last month while larger rival Qantas Airways cut routes and reduced its fleet size to limit the impact of fuel costs.

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Newspapers distorted Virgin Blue risk report: JPMorgan