Virgin Atlantic, 49% owned by Singapore Airlines, reported rather lackluster earnings the other day dragged down by Virgin Nigeria's performance. Higher fuel costs (particularly now and on the horizon), Virgin Nigeria operating in a tough environment, and open skies coming into force in early 2008 across the Atlantic, and the conditions seem ripe to me for Singapore Airlines to do what it should have done a while ago: sell the 49% stake back to Sir Richard and co.

Here are some of the highlights of Virgin's performance for the quarter:

-Profit down from £60.3 mln to £6.6 mln
-Revenue was up 16% to £2.2 bln
-Passenger numbers up from 4.8 mln to 5.3 mln

Virgin Nigeria was one of the main reasons earnings got dragged lower. When you think about it, that airline already operates in an extremely tough market to begin with. Finding success for them is something that could take a while, that is, if success ever comes their way.

Taking into consideration that open skies across the Atlantic will soon come into force and suddenly the market operating environment for Virgin Atlantic becomes a lot tougher on their bread and butter routes. A number of airlines that had previously not held route authority to Heathrow airport have already stated their intention to fly into what has been one of Virgin Atlantic's traditional hubs (over London's Gatwick airport). Granted the transatlantic market between London and the United States is the largest of them all, competition however will become much fiercer and cut throat as airlines work to undercut each-others market share on routes.

Energy costs continue to rise, particularly for jet fuel. Singapore Airlines hiked its fuel surcharge again recently, and crude prices also continue to trade in the $70 range.

With all these conditions, the time is now for SQ to sell their stake in my opinion, before the earnings picture gets even uglier than this.

Curtis Bergh

Labels: Earnings, Singapore Airlines, Virgin Atlantic