Australia's Virgin Blue says oil prices hurt more than 9/11

SYDNEY (AFP) - Australia's second largest airline Virgin Blue said Tuesday soaring oil prices were hurting the industry more than the September 11 attacks on the US, as it reported a 55 percent fall in net profit.

Virgin Blue Holdings said net profit for the year ended June 30 was 97.7 million dollars (84.6 million US) -- less than half last year's 215.8 million dollars.

Underlying profit was above expectations at 140.5 million dollars while revenue rose 8.4 percent to 2.35 billion dollars, it said in a statement.

But the airline, founded by British entrepreneur Richard Branson, said higher oil prices had damaged the industry more than the 2001 attacks on the US and the outbreak of SARS (Severe Acute Respiratory Syndrome) combined.

"The current fuel crisis -- and it is just that ... a fuel crisis in so far as the industry is concerned -- has swamped the industry, to a magnitude greater than probably SARS and 9/11 combined," chief executive Brett Godfrey said.

Virgin Blue said with fuel costs at record highs, aviation was facing "an unprecedented operating environment for airlines globally."

Since June, the airline has increased ticket prices, introduced new baggage fees, cut planned growth by 12 percent and scrapped some underperforming routes to help strengthen its bottom line.

"The operating environment during the next 12 months is expected to be the most challenging the Virgin Blue group -- which now comprises Virgin Blue, Pacific Blue, Polynesia Blue and VAustralia -- has experienced to date," it said in a statement.

"We will continue to adapt business operations accordingly."

Virgin Blue said that the average contract rate paid for fuel jumped by 17 percent in the year to June, pushing the total fuel bill for the year to 589 million dollars.

Analysts have said high crude oil costs have sparked the biggest crisis in the Asia-Pacific airline industry for years, while slowing global economic growth threatens to lower passenger numbers.

Industry body IATA said this month the number of people travelling by air grew at the lowest rate for five years in June as the global slowdown sapped demand.

Virgin Blue said given the current environment, it will not make a final dividend payment in 2008.

But the low-cost airline said that it expected a positive result for the 2008-2009 financial year and that its launch of VAustralia, a new carrier which will fly between Sydney and Los Angeles, was on track for late 2008.

"Key drivers for the rest of our business, namely capacity, demand and the cost of fuel remain highly volatile," the company said.

"Based on current market conditions and fuel prices, a positive result for the current financial year is expected, but remains a challenge."

Shares in Virgin Blue dropped sharply following the results. They closed down 32.5 cents, or 27.9 percent, at 84 cents.