Virgin Blue shares fall 25% on profit warning: Economy Roundup

Troubled airline Virgin Blue has cut its profit guidance by up to 75% due to limited demand and low consumer confidence, with the company’s shares plummeting 26% this morning as a result.

The company announced it expects net profit before tax and exceptional items of $20-40 million for the current financial year, down from the prior estimate of $80 million.

Shares have now dropped 25.6% to $0.32 due to the news.

The company said in a statement it “continued to see rapid deterioration and increased volatility in the operating environment” since its last profit guidance report earlier this month.

“This is consistent with the weakening trend seen recently in the broader retail market as well as an unexpected and sudden decline in consumer confidence in the last month,” it said in a statement to the ASX.

“The decline in demand has coincided with a period of increased industry capacity.”

The company also said average fares are expected to drop by over 10%, but the short haul business is still expected to make a net profit before tax and exceptional items of about $100 million.

The airline said average fares were expected to fall by more than 10%, in line with recent trends.

The announcement comes after the airline industry has suffered setback after setback, mainly due to disruptions caused by the Icelandic volcano eruption and financial problems in Europe.

Meanwhile, the Melbourne Racing Club is set to buy a $50 million portfolio of hotels previously owned by the collapsed Munday Group.

The MRC declined to comment this morning, but said details would be released next week regarding any transaction.

The suspected transaction comes after the Munday Group was placed into receivership by PPB in April, upon instructions from NAB.

The company’s 432 gaming machine entitlements were recently purchased in a state auction for $16.98 million.

Shares up 1.5% on Wall Street rise

The sharemarket has managed to rise over 1.5% this morning as global financial markets recovered from scares last week due to Greece’s debt problems.

The benchmark S&P/ASX200 index was up 76 points or 1.76% to 4455.9 at 12.15 AEST, while the Australian dollar also recovered nearly 2% to US85c.

ANZ shares gained 2% to $22.53, while Commonwealth Bank shares lost 2.8% to $52.13. Westpac rose 3% to $23.41 as NAB also gained 3.1% to $24.90.

A new AAP survey shows economists believe the Reserve Bank of Australia will pause next month and leave interest rates at 4.5%.

“There’s still a lot of uncertainty out there,” ANZ head of economics Warren Hogan told AAP. “The RBA has done a lot of work so they can sit back, but we think rates will probably have to go higher.

“We don’t think Europe is going to dislodge the China story, so we might have a bit of a soft patch where they can sit on hold, but they’ll be raising rates at the end of the year.”

However, Hogan also said the chance of an interest rate cut could be increased if global economic conditions deteriorate further.

Santos with Malaysian partner PETRONAS have received environmental approval from the Queensland government to go ahead with the Gladstone liquefied natural gas project worth $7.7 billion.

“The project now needs Federal Government approval under its environmental laws, as well as other state environmental and production licences and safety approvals,” state premier Anna Bligh said in a statement.

“If all the necessary approvals are granted and the company confirms its final investment decision later this year the project could be shipping supplies from 2014.”

Aquila Resources, partner with Vale in Australia, now has plans to sell 24.5% of its stake in the $2 billion Belvedere coal project, according to The Australian.

Aquila general manager of iron ore, Russell Tipper, said the company would be out of the project by the end of the year.

Henry defends profits tax in Senate

Treasury secretary Ken Henry has told a Senate Estimates Economics committee that the super profits tax would not hurt the mining industry and push up prices.

“The suggestion that the mining industry kept Australia out of recession is curious to say the least,” Henry said. “I learnt in high school… that profits-based taxes can’t affect prices.”

However, opposition leader Tony Abbott told reporters that line wasn’t going to cut it in the national debate. “All I know is that if you increase people’s costs, they are going to look to ways to maintain their rate of return.”

New Zealand appliance manufacturer Fisher & Paykel has reported a $67 million loss after tax for the year to March 31, with conditions expected to remain fragile.

The company said it had experienced difficult trading conditions in the US, but a recovery in the second half led to a $14.47 million after tax profit. While this is lower than the previous year’s profit, it is within the company’s guidance.

“The challenges and distractions associated with shifting manufacturing locations are now firmly behind the company,” chief executive Stuart Broadhurst said in a statement.

“The company is committed to building upon recent gains, executing growth opportunities and developing products for the future.”

Overseas, IMF managing director Dominique Strauss-Kahn has told reporters that European countries are taking good steps towards securing debt problems.

“Those countries in Europe having a fiscal problem are addressing this problem these days, along the measures that have been announced, and I do believe that they are going in the right direction,” he told reporters in Lima.

“I think that we’ve got good reason to believe that everything will come back on track rather rapidly.”

These improvements have been noted in the US, where stocks rose due to increase confidence in Europe’s ability to handle debt problems. The Dow Jones Industrial Average gained 284.54 points or 2.85% to 10.258.99.

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