The Virgin Australia Holdings Ltd (ASX: VAH) share price has tumbled lower today despite the release of a positive update relating to its Velocity Frequent Flyer business.
At the time of writing the Virgin Australia share price is down 3% to 15.5 cents.
Why is the Virgin Australia share price tumbling lower?
Unfortunately for its long-suffering shareholders, news that Virgin Australia is in negotiations to buy back a 35% stake in its Velocity Frequent Flyer business from Affinity Equity Partners has been offset by a sharp rise in oil futures.
At the time of writing, oil futures are pointing to 10% gains for both WTI crude oil and Brent crude oil prices when commodity markets reopen on Monday.
The catalyst for this was a drone strike on key oil refineries in Saudi Arabia which look set to have a negative impact on global supply.
This has sent the shares of energy producers such as Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO) hurtling higher this morning, but oil consumers including Qantas Airways Limited (ASX: QAN) and Virgin Australia tumbling lower amid concerns that higherr fuel costs could weigh on their profits.
Velocity Frequent Flyer negotiations.
Had this not occurred, I suspect the market might have reacted positively to Virgin Australia's announcement this morning.
That announcement revealed that the company has entered into a term sheet with Affinity Equity Partners to purchase the minority stake for $700 million.
Completion of the transaction remains subject to certain conditions, including the finalisation and execution of long form documentation, funding and the company receiving Foreign Investment Review Board approval.
But all being well, completion of the transaction is expected to occur before the end of the calendar year.
Also on the slide this morning is the Sims Metal Management Ltd (ASX: SGM) share price which has crashed lower after the release of a disappointing trading update.
