Fuel prices are now coming in well under budget offers some consolation. Costs will be contained. The real problem though is that, just as the supply of seats is about to rocket, demand is disappearing like the tide going out.
The carrier's current share price prompted Lim Kim Hai, Chairman of minority shareholder Regional Express (Rex) to suggest this week that Virgin Blue is now "extremely vulnerable" to a takeover bid, whether "hostile or friendly"
In Oct-08 Rex's owners also purchased shares in Virgin Blue, with the intention of "holding a strategic stake in the airline". As at 31-Dec-08, Rex held 19.1 million Virgin Blue shares. This acquisition has been seen as a sign that the carrier could be planning to capitalise on Virgin Blue's share market weakness. It is, however, uncertain what Rex's precise intentions with Virgin Blue are in the future.
There is only one substantial shareholder, Virgin Group, with a strategic 25.5% equity holding - enough to make it impossible for a prospective purchaser to assume control without having to deal with Sir Richard Branson on all key decisions. Branson is still "President" of the airline. Sir Richard was quoted this week as saying he had no intention of selling out, as he was "very proud of the company". In reality, he is unlikely to sell out at anything like the current abysmal price, even though buyers are in the air.
Branson is no pushover and holds at least two aces in this showdown. But the longer he holds on and the carrier's future remains uncertain, the greater the chance of polluting the brand.
Timing will be critical and extended delay will probably only weaken Branson's hand. Even he would be uncomfortable with a tough private equity group making life difficult and no room to manoeuvre.
