What: The share price of Virgin Australia Holdings Ltd (ASX: VAH) has fallen over 2% on Monday to a fresh 52-week low of 34 cents after the airline owner and operator released a third quarter trading update to the ASX.
So What: The key points of the update included the following:
- A third quarter underlying loss before tax of $18.6 million, representing a 16.2% improvement on the underlying loss in the prior corresponding period (pcp)
- A year to date underlying profit before tax of $62.9 million
- A plan to reduce capacity in the fourth quarter by 5.1% compared with the pcp, due to ongoing weakness in consumer demand and the resources downturn
The announcement by Virgin comes just two weeks after rival Qantas Airways Limited (ASX: QAN) shocked the market with the release of its traffic and capacity statistics for March. That news, which showed a decline in revenue per available seat kilometre, sent Qantas’ shares into a tailspin from over $4 to a 52-week low of $3.16.
Now What: With both Qantas and Virgin having now issued downbeat assessments on the outlook for air travel industry conditions, investors will understandably wonder what troubles may lie ahead for other exposed business such as Sydney Airport Holdings Ltd (ASX: SYD) and Flight Centre Travel Group Ltd (ASX: FLT).
Investors who have been attracted to these travel companies in the hope of benefiting from the domestic tourism theme may be better off looking at entertainment companies instead. Firms such as Village Roadshow Ltd (ASX: VRL) and Event Hospitality and Entertainment Ltd (ASX: EVT) offer exposure to the burgeoning tourist dollar, but are not directly exposed to the traditionally horrible economics of the airline industry.
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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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