Virgin Australia shares take off, rallying 11 per cent as airline returns to trade on ASX

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5 hours ago

Virgin Australia shares have rallied as the airline has officially returned to the stock market, marking one of the most anticipated listings of the year and the latest chapter in its turbulent journey.
Virgin's initial public offering (IPO) was priced at $2.90 per share, raising $685 million for the company.
After the company resumed trade on the Australian Securities Exchange (ASX) on Tuesday afternoon, Virgin shares ended 11.4 per cent higher, at $3.23.
After collapsing into administration at the height of the COVID-19 pandemic in 2020, Virgin was rescued by US private equity giant Bain Capital and delisted from the stock exchange.
Now the airline has taken off on the ASX once more, with a leaner business model, a new shareholder mix and the financial muscle of Qatar Airways behind it.
At the completion of the IPO, Bain's stake in Virgin was reduced to about 40 per cent, while Qatar Airways retained about 23 per cent, according to the prospectus.
At the bell-ringing ceremony at the ASX, Virgin chief executive Dave Emerson was loath to make any predictions around the share price on the first day of trade.
"We're focused on delivering long-term value for our shareholders, continuing to improve our performance, and so over time, I expect that to be reflected in stock price," he told reporters at Exchange Square in Sydney's CBD.
The airline was not seeking to raise funds through the IPO, but rather to deliver a return to its existing owners, who would have their stake reduced.
"It's a great sign that we did not need to raise any money in this float, it means that we have a very strong balance sheet," Mr Emerson said.
"We didn't need any additional capital, in fact, we're generating strong returns and we're able to fund our fleet growth without needing new equity … so we feel very well set-up for the future."
Overnight, two Virgin services operated by Qatar Airways were diverted on their way to Doha due to the temporary closure of Qatar's airspace, as Iran launched missiles towards US air bases.
One flight from Sydney and one from Brisbane were affected, with both landing safely.
The Virgin CEO said he received a call at 3:30am from his operations team, informing him of the diversion: "I thought, it was going to be a long day".
"Things are trending in a very good direction much more quickly than I might have thought when I woke up this morning and so I'm optimistic about where we're headed.
"Our flights today are scheduled to operate, they'll probably be delayed but we're expecting to operate our regular schedule today and then hopefully it's business as usual from there."
Mr Emerson said the airline would continue operating flights as it was up to customers whether they wanted to travel in the current environment.
"We've got free change over the next week, if anybody doesn't want to travel, they're welcome to change their plans or they can cancel and get a complete refund," he said.
"We want to support our customers here and let people make their own decisions about what they're comfortable with."
More than five years ago now, Virgin's fall was swift and dramatic. However, it was also entirely predictable if one considered the fate of Ansett Australia.
A fierce price war with Qantas had left Virgin financially vulnerable. Then came the global pandemic, grounding fleets and evaporating revenue almost overnight.
"Qantas was worried that Virgin Australia was going to attack its corporate travel market and go after the business market, so we had this brutal price war which left Virgin Australia a little bit weak," aviation analyst Peter Harbison told ABC News.
"And then when it was just starting to recover, COVID came along and it went into administration."
In April 2020, Virgin entered voluntary administration, with its boss blaming its failure to secure a federal government bailout.
Within months, the airline was sold to Bain Capital for $3.5 billion.
Bain Capital grounded budget offering Tiger Airways for good and set about repositioning Virgin as a mid-market offering.
Virgin returned to profitability in 2023. Mr Harbison said Virgin Australia offered fewer inclusions than Qantas but broader appeal than budget airline Jetstar.
"The lounges are more limited. Its product is really very much tailored to the mid-market, which does suggest quite a lot."
Mr Emerson described the airline as "different in almost every way as far as the business model goes" to the Virgin that collapsed during the pandemic.
"We're serving the small business, serving the value corporate, serving the premium leisure segment, those people who really value the product that we put out there … we've changed the whole business model, but what hasn't changed is our focus on delivering great service."
As of February this year, Virgin has an additional backer in government-owned Qatar Airways, which bought a 25 per cent stake in the airline and delivers more access to international routes.
"Now with Qatar, they have a very tidy deal which will very much help them in the future," Mr Harbison said.
Despite that, he did not line up to buy shares in the relisted Virgin.
"It is a highly risky business. The profitability margin over the last 70-odd years since the Second World War is pitiful."
The answer, according to analyst Mr Harbison, could be no.
He argued meaningful airfare reductions are unlikely without government intervention to free up airport slots and increase competition.
That is despite regional carrier Rex set to become government-owned if alternative buyers can't be found.
Mr Harbison said, with Rex firmly positioned as a regional airline, the Qantas–Virgin duopoly will remain.
"The only thing that is going to produce lower airfares is if demand slackens," Mr Harbison said.
"And it's not really showing a lot of signs of that at the moment — consumer confidence is reasonably high."
Mr Harbison said while Virgin IPO may result in some money spent on fleet renewal and other improvements, another price war with Qantas was unlikely.
"Qantas doesn't really want to rock the boat, it likes having Virgin there with a third of the market as long as it doesn't get too aggressive.
However, in recent weeks, Qantas has shown signs of ramping up competition in the trans-Tasman market, adding around 60,000 additional seats for December and January, taking on Air New Zealand.
Aviation expert Neil Hansford told ABC News the additional capacity could keep a lid on prices, in good news for travellers.
"You're not going to see anything like the price increases that could possibly have existed had Qantas not put all this extra capacity into the market," he said.