By Chris Zappone
Virgin Australia shares took off on their return to the Australian sharemarket, lifting more than 11 per cent on their first day of trading, with investors keen to get a piece of the nation’s second-biggest airline despite the uncertainty triggered by the war in the Middle East.
After more than four years’ absence, Virgin shares relisted on the ASX on Tuesday, rising to $3.23 by market close as investors bet that new management and more streamlined operations would bolster the company’s profitability even amid volatile oil prices.
CEO Dave Emerson and Virgin Australia employees at the ASX.
Virgin sold $685 million worth of stock to fund managers and retail investors in an initial public offering this month, floating about 30.2 per cent of the company. Investors paid $2.90 for the stock in the IPO. Virgin, which now has a market value of more than $2.5 billion, is trading under the sharemarket ticker VGN.
Demand from investors had outstripped the number of shares on offer in the IPO, according to Virgin CEO Dave Emerson, which explains the rise in the share price after the stock started trading.
“We were very pleased with the demand, and we definitely can say that the offer was oversubscribed,” Emerson said before the trading debut.
An overall positive market also would have boosted the stock, with the S&P/ASX 200 gaining 1 per cent in its Tuesday session after US President Donald Trump announced a ceasefire between Israel and Iran. The specific timing of the pause remains unclear, with Israel accusing Iran of violating the ceasefire on Tuesday evening AEST, which Iran has denied.
Shares of Virgin’s bigger rival Qantas Airways were also up strongly on Tuesday, closing with a gain of 2.4 per cent.
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.
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 had 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.
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 a US military 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 pointed to a tumble in oil prices – a key factor in airline costs and profitability – after Trump’s ceasefire announcement, which helped Virgin’s stock on its trading debut.
“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.
Virgin posted a pro forma net profit of $99 million in 2023, $187 million in 2024, and has forecast $219 for 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.
“It’s good they’re being rewarded on day one.”
CEO Emerson said that even if a prolonged situation in the Middle East 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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