VBA Upgraded

In a statement, the airline said it estimated its net profit before tax and exceptional items at between $80 and $110 million for the year to June 30, compared with a loss of $93 million a year earlier.

Virgin Blue's previous guidance was for a "return to profitability" this financial year.

The shares ended steady at 55c. Yesterday they edged up 1.5c to 56.5c

Analysts at Goldman Sachs JBWere said they had "revised our earnings estimates for VBA to reflect a swifter than expected recovery in domestic yields, as well as an improved outlook for V Australia given its recent strength in load factors and apparent yield improvement.

"VBA has clearly benefitted from a recovery in demand for domestic air travel (particularly in 2Q10).

"This is the majority of VBA's business and is more than offsetting the likely earnings drag from the ramp-up of V Australia.

"We note that load factors on V Australia services to LA have ramped up significantly over the last year, while airfares on that route have also shown some signs of improvement.

"VBA may also benefit from the decision around the Federal Government Air Travel Tender (combined domestic/international ~$500m) which we expect to be announced in the near term."

And a second bank, RBS said in a note to clients that "(VBA) Management has upgraded FY10 earnings guidance to A$80m-110m pre-tax profit (before exceptional items) due to improving operating conditions in the form of some yield recovery, but also a lower fuel cost in the 1H (US$92/bbl compared to US$127/bbl last year).

"This is a significant improvement on the underlying loss of A$24.6m recorded last year (FY09).

"Management continues to paint a cautious picture for the remainder of FY10 given volatility in the markets, but we note the increasingly positive tone of outlook commentary and we see conditions continuing to strengthen. We therefore wouldn't be surprised to see the FY10 result come in at least towards the top end of the guidance range.

"Given improving operating conditions we recently upgraded our FY10 pre-tax profit forecast to A$110.2m, at the top end of the current guidance range.

"We therefore make no changes to our forecasts, preferring to stay at the top of the range given our view that operating conditions (and therefore yields) should continue to strengthen over the remainder of the year.

"We do expect consensus earnings upgrades though; given Bloomberg consensus for pre-tax profit was A$74.0m prior to the announcement.

"Given improving operating conditions we recently upgraded our FY10 pre-tax profit forecast to A$110.2m, at the top end of the current guidance range."