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Virgin Blue's Profit Drops 8.8%, Outlook Is Grim

Australian airline Virgin Blue Holdings missed profit estimates with a 8.8 percent fall in its first-half profit and flagged a tough environment in the second half, knocking down its shares more than 4 percent.

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Virgin Blue, Australia's second-largest airline, said on Wednesday capacity growth was expected to exceed demand in the short-term, while high fuel costs would continue to impact the airline.

Virgin, which also flagged A$20 million (US$18 million) in capital expenditure in the second-half, said about 70 percent of fuel requirements are hedged at $76 per barrel.

Virgin reported a net profit of A$113.3 million for the six months ended December, down from A$124.3 million reported a year earlier. Three analysts on average had forecast profit at A$128.4 million.

Underlying net profit, excluding costs associated with new initiatives, rose 7.6 percent to A$135.1 million. Passengers carried in the first-half grew 4.6 percent to 8.16 million.

Virgin Blue said its board was evaluating a detailed review to enhance shareholder as the company was of the view that equity markets do not currently reflect the true underlying value of the business.

Virgin hired Goldman Sachs JBWere to assist in the process.

Virgin Blue shares are down about 32 percent in 2008, compared with a 11.5 percent fall in the S&P/ASX 200 Index.