VirginBlue Maintenance Struggling
to Keep up with Airline's Expansion
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Virgin Blue shares hold ground

March 10, 2004

VIRGIN Blue Holdings Ltd shares held their ground today, despite media reports bringing into question the discount carrier's maintenance record on its fleet of Boeing 737s.

The airline agreed in mid-December to fly within an hour of an airport at all times and will not upgrade its 40-strong fleet until an ongoing $US3 million upgrade of its maintenance system is completed.

While this could delay use of the airline's five new Boeing 737s due for delivery from the US by late May, analysts remain unconcerned over any major impact to the airline's long-term performance.

"Virgin hasn't chosen to release anything to the market; their prospectus forecasts still stand as far as we're concerned," CommSec industrials analyst Matt Crowe said.

Another analyst, who did not wish to be named, said that if the delay did have an impact, it would only be "a matter of weeks rather than a matter of months".

Virgin Blue chief executive Brett Godfrey said today the airline's planes were as safe to travel on as those of rival airline, Qantas Airways Ltd.

Mr Godfrey said if there was any doubt about the safety of Virgin Blue planes he would ground them.

Civil Aviation Safety Authority (CASA) spokesman Peter Gibson agreed, saying Virgin's growth spurt - from two planes in August 2000 - had meant its maintenance infrastructure was struggling to keep up.

"Right now, it's very much business as usual," Mr Gibson said.

"We've been in and done an audit of Virgin Blue earlier this year as part of our audit process (and) needed to take no

 action."

Boeing's Australian director of communications Ken Morton today confirmed the manufacturer had been asked by Virgin Blue to help out in development of its maintenance procedures.

"As we would with all of our customers, we are providing assistance with them to institute the procedures required to comply with the regulations," Mr Morton said.

"It's a relatively common occurrence for an airlines to draw on our expertise and depth of experience."

Meanwhile, Qantas' mainline domestic operations and QantasLink both surpassed Virgin Blue in January regarding their on-time performance, according to statistics from the Bureau of Transport and Regional Economics.

Goldman Sachs JBWere said the data indicated Virgin Blue's network on-time performance slipped to 84.1 per cent in January, from 85.9 per cent in December.

This compared with an improvement in Qantas' network to 87.9 per cent, compared to 84.6 per cent the previous month.

For the three months ending January 2004, the broker said Virgin Blue outperformed Qantas on the on-time departure metric, but for on-time arrivals Qantas was the better of the two.

"We do not see the BTRE data as having a direct impact on earnings," its research report said.

"However, we see Virgin Blue's focus of improving on-time performance as attempting to erode the product differential

 between itself and Qantas and part of a broader strategy to increase its share of higher yielding business traffic."

Credit Suisse First Boston said the data demonstrated "an increased effort by Qantas to improve its OTP in an attempt to reduce the loss of corporate travel share to Virgin Blue".

"OTP is regarded as a key reason or business travellers choosing which airline to fly."

UBS estimated Virgin Blue's domestic market share increased by one per cent in January to 32.8 per cent.

Virgin Blue shares closed up one cent at $2.51 while Qantas shares gained eight cents or 2.26 per cent to $3.62.

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