Virgin Australia shares take off, jumping 7.9 per cent in ASX return
Shares of Virgin’s bigger rival Qantas Airways were also up strongly on Tuesday, gaining 2.9 per cent in late trading.
Virgin was delisted from the ASX in 2020 amid mounting debts and losses. Having entered administration, it was bought by US-based Bain Capital, the private equity firm Emerson worked for before joining Virgin’s management in 2021.
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A major development for Virgin was the entry of Qatar Airways as an anchor investor and long-haul flight partner last year. Qatar took a 23.4 per cent stake in Virgin, providing significant backing for the airline, which previously struggled against Qantas.
While Qatar’s share of Virgin remained unchanged in the IPO, Bain Capital sold down its stake from 70.2 per cent to 40 per cent, according to the share sale documents.
Virgin entered a wet lease agreement with Qatar earlier this month, which will see both airlines operate flights from Australia’s capital cities to Doha using Qatar’s planes and crew.
The partnership serves as a gateway for Virgin to Europe, the Middle East and North Africa, enabling it to re-enter the long-haul flight market without the operational challenges that hindered its previous forays into international routes.
Yet co-operation on the major air traffic route through the Persian Gulf region, which connects Australia with Europe, comes at a fraught time for the region.
An Iranian missile attack targeting US military assets at a base near Doha, where Qatar is based, in retaliation for America’s bombing mission on Iran’s nuclear weapons labs during the weekend, forced the closure of airspace in the region on Tuesday morning. This, in turn, caused hundreds of delays and diversions of flights through routes linked to the Middle East.
On the go: Virgin Australia. Credit: Luis Ascui/The Age
Hugh Dive of Atlas Funds Management noted the “bump” in the share price from the issue price, pointing to a tumble in oil prices - a key factor in airline costs and profitability - after Trump’s ceasefire announcement.
“They’ve had a lot of luck here,” he said. “If Virgin listed yesterday, it would have been somewhat different.”
With geopolitical tensions keeping oil prices volatile, longer-term sentiment towards airline stocks in general may struggle, Dive cautioned.
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Virgin posted a pro forma net profit of $99 million in 2023, $187 million in 2024, and has forecast a $219 million pro forma profit this financial year as it targets premium leisure, small and medium enterprises and cost-conscious corporate customers.
Anthony Wilson, head of equities at Shaw and Partners, said the demand for Virgin shares was a good sign for future IPOs on the ASX.
“This goes a long way in pushing the door open for additional IPOs this calendar year,” he said. Virgin’s woes in the past were well-publicised, Wilson said.
“So investors went into the deal with their eyes wide open,” he said. “Its good they’re being rewarded on day one.”
CEO Emerson said that even if a prolonged situation weighed on demand for Qatar’s services between Australia and Doha, it wouldn’t affect Virgin’s core business.
“The way our partnership with Qatar is structured [means] our economics are focused on the domestic business, and their economics are focused on the long-haul business...So even if demand didn’t meet expectations, we wouldn’t expect it to have a material effect on our [profits]. ”
Angus Gluskie, head of investment firm Whitefield, said investors were not “under any illusion about the industry itself; airlines are exposed to vagaries of geopolitical risk, oil prices, and competition”.
“It’s a tricky industry, and any investor is well aware of the dynamics.”
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