Ready for takeoff: Virgin eyes an initial public offering in May
As she balances booming travel demand with difficult equity markets, Virgin CEO Jayne Hrdlicka is looking at May for a blockbuster float for the airline.
Virgin Australia is eyeing May as the most likely date for an initial public offering after tumultuous equity market conditions meant it had to rule out a float this calendar year.
Australia’s second largest airline has enjoyed a stellar recovery, posting its first full-year profit in a decade just three years after collapsing during the pandemic and being snapped up by US private equity giant Bain Capital.
Last month, chief executive Jayne Hrdlicka announced net profit after tax for the year ended June 30 was $129m, and revenue rose 124 per cent to $5bn in the year to June 30, up 124 per cent.
Like its larger rival Qantas, Virgin is benefiting from record demand for travel from leisure travellers following years of pandemic-related border closures and a rebound in demand from corporate travellers.
There had been some speculation that Bain would sell shares in the airline in the first quarter of calendar 2024 but bankers involved said May was the target month, depending on equity market conditions.
The new date gives Virgin more time to show investors – many of whom would be cynical after its failure in 2020 – that it can be a profitable business under new management. Virgin will have another audited half-year result, for the six months ending December 31, to show prospective investors by May.
Those results will show whether Virgin has been able to capitalise on intense customer dissatisfaction with Qantas, with the latter winning the unenviable title of the most complained-about company for two years running, according to the competition watchdog.
Loyalty programs suggest Virgin is gaining traction, with its Velocity program now reaching a record 11.6 million members.
The new Virgin, under Ms Hrdlicka, who once ran Qantas low-cost unit Jetstar, has a different business model than what it had under former CEO John Borghetti.
Mr Borghetti had previously run Qantas’s airline division, and when he missed out on the top job at the Flying Kangaroo he moved to Virgin and tried to compete with his former company in the premium cabins on both domestic and international routes. Now the airline has a very limited international network, with the most recent route added being Tokyo airport Haneda, and a greater focus on costs over luxury.
While Ms Hrdlicka has brought the airline back into the black, the IPO will still face the double challenge of credibility – many Australians lost all their money the last time Virgin traded on the stock exchange – and tricky market conditions.
The Reserve Bank has just lifted the official interest rate for the thirteenth time since May 2022 to curb spending on the back of sticky inflation figures, and the few companies that did float this year have failed to perform.
The biggest was chemicals distributor Redox, which raised $400m, followed by Nido Education, which raised $99.2m.
Both are trading below their IPO price.
Listing in this market would increase the prospect of a dramatically lower valuation for Virgin, something Bain may not be prepared to swallow.
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