Virgin Australia can ride out Middle East volatility, private equity boss says

Reuters

5 hours ago

SYDNEY, June 26 (Reuters) - Bain Capital partner Mike Murphy is confident Virgin Australia's (VGN.AX), opens new tab domestic business focus will help the airline withstand travel disruptions and oil price volatility created by the ongoing Middle East tensions.
Bain, which bought Virgin for A$3.5 billion ($2.3 billion)including liabilities in 2020, raised A$685 million when Australia's second largest airline relisted on the Australian Securities Exchange on Tuesday.
The private equity firm's stake was reduced in the initial public offering to 39.4% from about 70%.
Virgin's debut on the ASX came hours after Qatar shut its airspace and prompted the airline to divert two Qatar-bound flights after Iranian missiles were fired at a U.S. base in the state.
Virgin started Doha flights earlier this month under a lease deal with Qatar Airways which owns 23% of the carrier.
"Our view on Middle East and oil is that as tricky as those issues are for an airline we're pretty well placed geographically and strategically in terms of the domestic focus to be assured as you could be being in this sector," Murphy told Reuters by telephone.
"From an oil price volatility perspective, we're very comprehensively hedged out in the short to medium term."
Virgin said in an exchange filing on Tuesday it has hedged 98% of its anticipated fuel usage in Brent crude oil at a cap of $70 per barrel for the first half of 2026. It has hedged 86% of its anticipated fuel usage at the same price in the second half.
Virgin holds a domestic flight market share of 34.4% as of March versus Qantas' 37.5%, a recent report from the Australian Competition and Consumer Commission showed.
Murphy said the decision made under Bain's ownership to pare back its international routes to be mainly a domestic carrier had strengthened Virgin's balance sheet and profitability.
"Long-haul international was not a part of the business that ever made money ... those strategic decisions that the company of that era made resulted in a pretty overstretched balance sheet, a very weak set of margins," Murphy said.
Virgin shares closed on Thursday at A$3.25, up 12% from the IPO price of A$2.90.
($1 = 1.5286 Australian dollars)