Virgin Australia cuts capacity citing election, weak sentiment

SYDNEY (Reuters) - Virgin Australia Holdings Ltd, the country's No. 2 airline, on Monday blamed uncertainty about an upcoming Federal election and weak consumer demand as it warned that it will cut capacity for the remainder of fiscal 2016.

The airline said underlying pre-tax profit jumped 16.2 percent to A$18.6 million ($14.17 million) in the three months to March 31, but warned it will cut its June quarter capacity by 5.1 percent due to weak demand combined with uncertainty about the federal election and the resources sector downturn.

The warning comes two weeks after larger domestic rival Qantas Airways Ltd said it was cutting domestic capacity due to softer demand, also citing uncertainty about the Federal election expected to be held on July 2.

For Richard Branson-backed Virgin, the disclosure adds to a sense of instability since its biggest shareholder, Air New Zealand Ltd has said it may sell its 26 percent stake.

Virgin also said this year that it plans to tap its four largest shareholders, which include Air New Zealand, for a A$425 million loan, stoking concerns that a turnaround it is currently undergoing may be taking longer than hoped.

Virgin and Qantas have been benefiting from a dip in the oil price as they emerge from a years-long price war which led to hefty losses.

In its statement on Monday, Virgin said it expects to post a pre-tax underlying profit of between A$30 million and A$60 million in the year to June 30, in keeping with its previous guidance of returning to profitability this year following two previous years of net losses.

(Reporting by Byron Kaye; Editing by Stephen Coates)