Virgin Australia could make IPO as early as next year: Jayne Hrdlicka says

Virgin Australia chief executive Jayne Hrdlicka says the airline has returned to profitability and is considering listing on the ASX as early as next year.

Jayne Hrdlicka talks to ground staff airside at Brisbane Airport on Thursday. ‘We’re punching above our weight.’ Picture: Lyndon Mechielsen

Virgin Australia chief executive Jayne Hrdlicka says the airline has returned to profitability and is considering listing on the ASX as early as next year.

In her first comments about a possible public offering after Bain Capital’s purchase of Virgin out of administration, Ms Hrdlicka said the airline was experiencing record leisure demand and strong corporate travel demand, setting the stage for a float.

“It’s not outside the realm of possibility,” Ms Hrdlicka told The Australian. “It’s a lot faster than we thought it would be and we are flattered that this soon after becoming a new company and starting from scratch we’re in a position where we’re having these conversations, because it’s extraordinary.”

The once stricken airline is as profitable as Qantas domestic routes, Ms Hrdlicka said.

“I don’t have full transparency on what’s happening on their side, but I’d say that we’d be doing at least as well,” she says.

Airlines across the globe are enjoying pent-up demand for corporate and leisure travel that is far exceeding the oft-damaging impact of the rising price of oil – the second-biggest cost for carriers after employees.

Qantas is experiencing dramatic growth in demand across domestic and international. In the US, both United Airlines and American are expected to move from first-quarter losses to their highest ever revenues. In the Middle East, Emirates expects to start repaying the $US4bn ($5.6bn) in aid received from authorities in Dubai.

The Australian has previously reported that Bain was considering options about listing Virgin. However, this is the first time the airline has confirmed an IPO is firmly on the table despite the volatile equity markets.

Ms Hrdlicka also said Virgin was considering how to restructure $1.8bn in debt – down from about $5.1bn pre-administration.

The airline’s credit mix currently includes two US private placements, bank debt, and loans from the Queensland Investment Corporation, which is both an ­equity and debt holder in the ­airline.

“The debt portfolio needs reviewing and we need to be able to fund growth,” Ms Hrdlicka said.

Virgin Australia chief executive Jayne Hrdlicka at Brisbane Airport. Picture: Lyndon Mechielsen

Ms Hrdlicka used Virgin’s ­period in administration to simplify the airline’s main line fleet to Boeing 737s – with commitments for 88 – but the capital structure of the Brisbane-based company has slipped from its preferred balance of 50-50 leasing to balance sheet ratio for its planes, to 25 per cent.

Ms Hrdlicka said there was record high demand for domestic leisure travel, which was at about 125 per cent of 2019 levels.

On the business side, Virgin was also seeing strong demand in small to medium business travel.

“Corporate travel is rebounding faster than we would have thought,” she said.

“Companies are realising that relationships are a fundamental part of running your business. If you’ve worked from home for a whole year you don’t feel the same affinity to your colleagues.

“We’ve worked through Covid relying on Zoom and Teams and WebEx to stay connected, but that has a use-by date on it.”

Data released by the Australian Competition & Consumer Commission this week confirmed Virgin had an overall domestic market share of 33 per cent in the first three months of the year.

“We’re punching above our weight because we have a higher passenger share relative to our capacity share, which is fantastic. We’re really pleased about that,” Ms Hrdlicka said.

Key to Virgin’s success on this measure has been narrowing the gap between its cheapest and most expensive fares, making both the top and bottom cheaper. Ms Hrdlicka said she had been able to do this by “dramatically” reducing its cost base during administration. “Forward bookings have definitely increased significantly and last-minute bookings are also still quite strong,” she said.

On top of the suddenly strong fundamentals for airlines, the Bain Capital-controlled Virgin has the benefit of starting from scratch post administration, including having to negotiate 2000 contracts with the likes of airports and leasing companies.

Ms Hrdlicka was controversially catapulted into the role of Virgin’s chief by Bain despite public assurances the company would keep its existing chief executive.

Her appointment was a blow to many Virgin staff at the time who were exhausted from the lead-up to the collapse, and liked the popular ex-CEO Paul Scurrah.

But Ms Hrdlicka said she tried to ignore the noise and create an airline that could survive the Covid-19 pandemic. “There’s no playbook for it,” she said of the pandemic. “We had the biggest of all challenges because we were not only going through the challenges of history, we were then trying to use administration as a mechanism for resetting the platform so that we have chances of successful business in the future.”

When Bain won control of Virgin some thought the private equity giant, which has $US160bn of assets under management, had bitten off more than it could chew.

It is one of the larger acquisitions the Boston-based firm has made in its near 40-year history.

But, according to one senior executive, Bain’s chairman, Stephen ­Pagliuca, said: “I don’t think I’ve ever been more excited about an investment in my life.”