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Virgin Australia warns business travel cooling as election simmers

Virgin Australia cuts capacity citing election, weak sentiment

By Byron Kaye

SYDNEY (Reuters) - Virgin Australia Holdings Ltd joined rival Qantas Airways Ltd in slashing seating capacity, warning firms like mining companies are delaying business travel during a 10-week election campaign that will fuel doubts on economic policy.

As its focuses on a return to profit after years of losses in a damaging price war, Virgin Australia said on Monday it plans to cut seats on its April-June flights by 5.1 percent to ensure fuller flights. In April, Qantas also trimmed capacity plans citing the run-up to a likely July 2 vote.

"This environment has been impacted by weak consumer demand and sentiment, uncertainty around the federal election and the resources sector downturn," Virgin Australia Chief Executive Officer John Borghetti said in a statement.

The capacity cuts add to clouds gathering since Virgin Australia's biggest shareholder, Air New Zealand Ltd , said it may sell its 26 percent stake. The firm's shares fell 5 percent to a two-year intraday low.

The carriers say election campaigns mean businesses delay non-essential travel until they know the outcome. Last month Prime Minister Malcolm Turnbull named a probable election date 10 weeks out - double Australia's usual campaign length.

"It does tend to create a situation where businesses sit on their hands until they get clarity about who's in charge," said Bell Potter analyst John O'Shea. The mining slowdown is "still working its way through the system".

Sliding commodity prices have slammed the country's resources sector. As miners hold off for now on "fly in, fly out" travel - shuttling staff to and from far-flung mines - Virgin Australia will focus seat reductions on regional routes, while it works on a previously announced deal targeting that market with charter operator Alliance Aviation Services.

Corporate travel is big business for Virgin Australia. The carrier previously set a target of reaping 30 percent of its revenue from business travel by end-June 2017.

It declined to comment on that goal on Monday, but said it's on track to return to profit this year. It issued a forecast for pre-tax earnings of A$30 million (16 million pounds) to A$60 million for the year to June 30 - well below the A$79 million consensus from analysts polled by Thomson Reuters.

Still, the carrier also said earlier this year that it plans to tap its four largest shareholders for a A$425 million loan, stoking doubt over its progress towards profitability.

(Reporting by Byron Kaye; Editing by Kenneth Maxwell)