Virgin Australia Falls After Forecasting Profit Decline

Virgin Australia Holdings Ltd., Australia’s second-largest carrier, slumped the most in three years in Sydney trading after forecasting that annual profit would slip for the third time in five years.

The stock declined 17 percent, the most since May 2010, to close at 38 Australian cents, and suffered the sharpest fall on Australia’s benchmark S&P/ASX 200 index. Profit before tax and one-time items in the 12 months ending June will be less than last year’s A$83 million ($82 million), the Brisbane-based company said in a statement yesterday.

Virgin is taking on Qantas Airways Ltd.’s 65 percent share of Australia’s domestic market, rolling out business class services while risking lower ticket prices by adding flights in tandem with the larger carrier. It’s also taking control of Tiger Airways Ltd.’s Australian budget airline and rural service Skywest Airlines Ltd. using cash provided by Singapore Airlines Ltd. to build half of its 20 percent stake in Virgin.

There had been a “slower than anticipated improvement in trading and economic conditions” and no further profit forecast was possible, Virgin said in its regulatory statement released after the close of the market yesterday.

The cheapest discount air fares slumped to their lowest in a year and business class tickets dropped to a three-month low in May, according to government figures released today.

Growth in Virgin’s flight capacity would be about 4 percent in the six months ending June, compared to a previous forecast of 5 percent to 7 percent, the carrier said.

Virgin hasn’t previously forecast earnings for this year. It was expected to earn A$61 million before tax during the period, based on the mean of 11 analyst estimates compiled by Bloomberg, with net income of A$43 million based on the average of nine estimates.

The airline has declined 9.5 percent this year while the S&P/ASX 200 index has climbed 11 percent in the period.

Before it's here, it's on the Bloomberg Terminal.