VAH Details 
ACCC refused to authorize Virgin Australia and Alliance partnership: Virgin Australia Holdings Ltd (ASX: VAH) recently reported that Australian Competition and Consumer Commission (ACCC) has issued a draft determination proposing the denial of authorization for long-term strategic partnership between Virgin Australia Holdings Ltd and Alliance Airlines Services Ltd. Both the parties reported that they would review ACCC’s concerns over proposed strategic partnership. But with the partnership, both the groups intend to pursue new opportunities in the closed charter market. Primarily, ACCC refused to accept the plans to control costs via joint bidding in Australia’s fly-in/fly-out air services market. The partnership might support both the parties in boosting their market position, but will decrease competition which would eventually impact prices.
 
Strengthening balance sheet: The group recently raised over $1.1 billion in equity to cut their leverage and fund their initiatives to enhance earnings and cash flow. Moreover, Virgin also undertook an issuance of US dollar bonds in October 2016 leveraging favorable conditions in international debt markets. Virgin intends to generate a net free cash flow savings of $300 million per annum by the end of the 2019 financial year via their Better Business program. 

FY16 Performance Highlights (Source: Company Reports)
 
Weakness in first quarter of FY17 trading: Virgin Australia reported that the trading conditions for the first quarter of FY17 have been volatile. Total sectors flown lost 2.3% during the first quarter of FY17 as compared to the same period of last year. Moreover, given the recent rise in fuel prices coupled with unfavorable movements in the price of foreign exchange rates, Virgin said that they already hedged 90% of their potential fuel consumption for the 2017 financial year, and accelerated their hedging for the first half of the 2018 financial year to leverage low fuel prices.
 
Recommendation: VAH stock performance has been subdued this year and declined about 51.1% this year to date and lost over 8.3% in the last three months (as of December 19, 2016). Despite reporting a rise in underlying profit before tax by $90.1 million to $41.0m in FY16, the group delivered a statutory loss after tax which rose over $130.9 million to close at $224.7 million during the period. This loss was owing to upfront costs of implementing better business program. VAH stock looks to be trading at higher levels given the prospects. We give a “Sell” recommendation on the stock at the current price of – $ 0.22

 
VAH Daily Chart (Source: Thomson Reuters)

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