Virgin Blue must lift fares by 10 per cent to survive, analysts say

Virgin Blue, Australia's second-biggest airline, needs to raisefares at least 10 per cent, rather than sell new stock, if it wantsto remain viable, analysts at JPMorgan Chase say.
Virgin Blue operates New Zealand's Pacific Blue.
Record fuel prices meant the "ideal scenario" was forBrisbane-based Virgin Blue to implement a 10 per cent price riseimmediately, analysts Matt Crowe and Russell Crichton-Browne saidin a report to clients.
Increasing fares 5 per cent this year and in 2009 would save VirginBlue although leaving the company with a "not very attractive"growth profile.
"If jet fuel stays at current levels for several years and VirginBlue cannot significantly increase fares it would not survive,"Crowe and Crichton-Browne said.
"Equity injections would be futile as prices would not cover costs.Even with A$1 billion in equity Virgin Blue would not remainsolvent."
Virgin Blue, 62 per cent-owned by Toll Holdings, slashed its 2008earnings forecast in April as jet-fuel prices more than doubled inthe past year. It increased fares last month and larger rivalQantas Airways cut routes and reduced its fleet size as airlinestry to limit the impact of fuel costs.
Shares of Virgin Blue have slumped 70 per cent this year andreached a record low of 60c this week.
Airlines worldwide may report combined losses of US$6.1 billionthis year, the worst since 2003, as spiralling fuel costs andslowing economies wipe out earnings, the International AirTransport Association industry group said this week. The group cutthe earnings forecast for the fourth time in nine months.
Toll Holdings scrapped plans to sell its controlling stake inVirgin Blue in April. Richard Branson's Virgin Group holds a 25 percent stake.
- BLOOMBERG