Virgin soars in 'luckiest' Aussie share debut of year
Virgin Australia has returned to the stock market with a transaction that timed its arrival perfectly.
Shares in the nation's second-biggest airline were changing hands at $3.165 on Tuesday afternoon, up 9.1 per cent from their $2.90 listing price.
Virgin shares began trading under the ticker code VGN at noon, hours after word of a likely ceasefire between Iran and Israel sent oil prices tumbling.
"Until yesterday there were concerns the airline's IPO was hitting the market at the wrong time, but the overnight action has changed everything," Moomoo market strategist Michael McCarthy said.
"Now, with risk appetites rising and oil prices dropping as fears of war recede, Virgin might be the luckiest debutant of the year."
Jet fuel typically is the biggest operational expense for any airline, typically representing around 30 per cent of all costs, according to the International Air Transport Association.
As with petrol, the price of the refined fuel is closely linked to the price of crude oil, which fell sharply at a possible end to the Middle East hostilities.
Virgin's pre-existing owners - including US investors Bain Capital, Qatar Airways Group, Virgin Group and the Queensland Investment Corporation - sold a 30.2 per cent stake in the airline for $685 million, giving it a market capitalisation of $2.3 billion based on the offer price.
Its chief rival, Qantas, was valued at more than $15 billion on Tuesday.
Virgin collapsed into voluntary administration at the start of the COVID-19 pandemic in April 2020, owing $7 billion to more than 12,000 creditors.
It was acquired by Bain in November of that year for $700 million before being delisted from the stock market and restructured.
"Today marks the start of an exciting new chapter for Virgin Australia as a publicly listed company," Virgin Australia chairman Peter Warne said.
"Our listing reflects the remarkable work undertaken over the past five years to transform the airline and position it for long-term success.
"It is great news not just for our people, but for travellers who rely on Virgin Australia being a strong, resilient and competitive airline."
Virgin Australia chief executive Dave Emerson said the airline was entering its next phase with a clear strategy, simplified operating and commercial models and strong team.
Staff were being offered $3,000 "take-off grants" that would convert to ordinary shares if they remained with the company during a 24-month vesting period in recognition of their contributions to the airline's success, he said.
Virgin flies a fleet of more than 100 aircraft on 76 domestic and short-haul international routes.
Earlier in June, it began long-haul services between Australia and Doha under a "wet lease" agreement with Qatar Airways.
Under such deals, the lessee provides the plane and crew, while the lessor sells the tickets and markets the flights.
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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. 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