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What Virgin Australia’s return to the ASX will mean for investors

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Virgin Australia is coming back to the share market. Here’s what this new chapter could mean

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Rico Merkert, University of Sydney

It is finally happening. After five years of being a private company, Virgin Australia will relist on the Australian Securities Exchange (ASX) on June 24. The company is expected to raise A$685 million through the initial public offering (IPO).

So, who will benefit from Virgin Australia’s return to the share market? Having paid $3.5 billion for the bankrupt carrier back in 2020, private equity firm Bain Capital will be the most immediate winner.

Earlier this year, Bain had sold 25% of the company to Qatar Airways. Now, with the IPO, Bain will reduce its stake from about 70% down to 40%. Most of the $685 million raised will go straight to Bain.

With Virgin’s anticipated market capitalisation close to $2.3 billion and enterprise value of reportedly up to $3.6 billion, it is now evident that Bain has – with Jayne Hrdlicka at the helm of the airline – not only managed to turn the company around, but to also profit nicely from doing so.

Without Bain’s rescue at the beginning of the pandemic (which was catastrophic for airlines globally), the situation may have become quite detrimental for travellers. It also avoided having the Australian taxpayer foot the bill for a bailout.

Will the airline’s customers be better off after this? It will depend on how much, if anything, Bain chooses to reinvest in Virgin after this share offering is over. But Virgin has also recorded substantial recent profits, some of which are expected to be spent on newer aircraft and improved services.

Stronger competition for Qantas?

Looking at the strategies of both Virgin Australia and its biggest competitor, Qantas, in recent years, it seems both have learned to love playing the duopoly game.

Based on our own calculations, Virgin controls roughly 33% of Australia’s domestic seat capacity and the Qantas group (which includes Jetstar) much of the rest on the country’s core flight network.

In the 2010s, the two airlines were out-competing themselves in adding capacity to the market, which drove down yields (or revenue per passenger) and nearly killed Virgin Australia 1.0.

Now, Qantas and Virgin have new chief executives who understand both airlines can be very profitable if they show some (capacity) discipline in how many seats they create and sell.

Better services

For that reason, it’s likely not much will change in terms of competition, at least in the domestic market. But this is only true as far as capacity is concerned.

It seems reasonable to assume Virgin’s recent profits and any funds from the capital raise will only be used to support future growth if it is profitable. The majority of the profits will likely go towards fleet renewal and improvement of the airline’s product.

For consumers, this wouldn’t necessarily mean lower airfares in the domestic market. But it would mean newer aircraft and enhanced services, which is a positive for both flyers and the environment.

International departures

Virgin Australia will become a more formidable competitor to Qantas, thanks to its newly formed relationship with international partner Qatar Airways and the additional cash from relisting.

It will be interesting to observe what Qatar will do next and whether a new player – perhaps Singapore Airlines – will enter the scene and take a stake in the airline once Virgin Australia is trading publicly again.

It would not be the first time an international airline has taken a stake in Virgin Australia, and could create some interesting dynamics.

Another beneficiary is Virgin Australia’s management team, who’ve been somewhat shackled by the priority of getting the IPO off the ground. The IPO will free up management to deploy resources towards more longer-term priorities.

Many will see a significant payday – it’s estimated staff are sitting on shares that could soon collectively be worth $180 million.

Why now?

Bain Capital has timed this IPO carefully. Virgin Australia has (in tandem with Qantas) produced a stellar financial performance in the last financial year. It may deliver an even better one in the current reporting period.

To maximise returns, it is likely Bain did not want to waste the opportunity to capitalise on the moment. Global markets are still full of volatility and geopolitical uncertainty. What may diminish is the financial performance of the core business Bain Capital is trying to sell.

At $2.90 a share, Virgin Australia will have a price-to-earnings ratio (used to assess how relatively expensive a share price is) of seven times its expected earnings this financial year. This is lower than Qantas’ ratio of ten times expected earnings this financial year.

Profits are likely to remain high this year, with continuing strong demand, high yields and low jet fuel prices. The brokers and underwriting investment banks will use this to sell the story.

IPOs can sometimes deliver those already holding shares in a company significant day-one windfall profits. In this case, however, Bain’s expertise in the venture capital market means it is unlikely to leave any money on the table.

One may also argue while Virgin appears to be priced at a discount compared to Qantas, there may be legitimate reasons for the price differential, such as Qantas’ very profitable loyalty business.

Given uncertainties around demand and geopolitical tensions, there is no guarantee the share price of Qantas will remain at record highs for too long, which means the opportunity to present Virgin shares as a bargain may be short-lived.

In the long term, it is widely agreed airlines are by definition volatile investments and not necessarily something the average investor should have in their portfolio.

Moving forward

Symbolically, the decision for Virgin to use a new stock ticker – VGN instead of the old VAH – may avoid bringing back bad memories.

Five years can be a lifetime in aviation, but maybe not to bond holders who got just 10 cents in the dollar and shareholders (including the large airline partners who held equity stakes) who got nothing when the airline collapsed in 2020.

From a strategy perspective, it will be important for management to avoid history repeating itself with international airlines buying into Virgin and securing board seats.

This can be one way of influencing the strategy of the carrier’s domestic arm to funnel more passengers to their own international flights.

It is positive, for both Virgin Australia and the Australian aviation industry, that Bain Capital appears set to pull this off and that the revitalised airline is now truly Virgin Australia 2.0.


Clarification: this article has been amended to clarify that most of the $685 million raised will go to Bain Capital.

Rico Merkert, Professor in Transport and Supply Chain Management and Deputy Director, Institute of Transport and Logistics Studies (ITLS), University of Sydney Business School, University of Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Inflation rise reduces chances of Reserve Bank rate cut

Inflation spikes, drastically reducing chances of a Reserve Bank rate cut amid economic pressures and rising costs

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Inflation spikes, drastically reducing chances of a Reserve Bank rate cut amid economic pressures and rising costs

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In Short:
– Rate cut likelihood by the Reserve Bank has decreased due to a rise in annual inflation to 3.2 per cent.
– Significant price increases in housing, recreation, and transport are raising concerns for the Reserve Bank.

The likelihood of a rate cut by the Reserve Bank has decreased significantly after a surge in annual inflation.

The Australian Bureau of Statistics reported that inflation for the year ending September rose to 3.2 per cent, reflecting a 1.1 per cent increase.

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Trimmed mean inflation, a crucial measure for the Reserve Bank, was recorded at 1 per cent for the quarter and 3 per cent for the year. The bank anticipates inflation to reach 3 per cent by year-end, while trimmed mean inflation is expected to slightly decrease.

The quarterly rise of 1.3 per cent in September exceeded expectations. Governor Bullock noted that a deviation from the Reserve Bank’s projections could have material implications.

Financial markets reacted promptly, with the Australian dollar rising against the US dollar, while the ASX200 index fell.

The most significant price increases were observed in housing, recreation, and transport, indicating widespread price pressures that concern the Reserve Bank.

Despite the unexpected inflation rise, some economists believe the Reserve Bank may still consider rate cuts in December, viewing current price spikes as temporary due to the winding back of subsidies.

Economic Pressures

Broad-based economic pressures suggest that the Reserve Bank may not reduce interest rates at its upcoming meeting. Analysts highlight the need for ongoing support for households facing cost-of-living challenges.


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Wall Street hits record highs on low inflation

Wall Street hits record highs on cool inflation and strong earnings ahead of key Federal Reserve interest rate decision

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Wall Street hits record highs on cool inflation and strong earnings ahead of key Federal Reserve interest rate decision

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In Short:
– U.S. stocks rose to record highs on Friday due to lower inflation and strong corporate earnings.
– Key earnings reports from major companies are expected next week, influencing market trends.
U.S. stocks rose to record highs on Friday due to lower-than-expected inflation data and positive corporate earnings.The S&P 500 and Nasdaq achieved their largest weekly gains since August. The Dow saw its biggest jump from Friday to Friday since June.

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The Labor Department reported that the Consumer Price Index was slightly cooler than analysts’ predictions, easing concerns about inflation impacts from tariffs. This development suggests a likely interest rate cut by the Federal Reserve at its upcoming meeting.

Ryan Detrick from Carson Group noted the positive inflation news may facilitate forthcoming Fed rate cuts. Despite the ongoing government shutdown affecting data releases, this CPI report provided much-needed clarity.

Earnings reports are continuing, with 143 S&P 500 companies having reported results. Growth expectations for third-quarter earnings have risen to 10.4%. Detrick indicated a strong opening to the earnings season with a significant percentage of companies exceeding expectations.

This coming week, key earnings will be reported from Meta Platforms, Microsoft, Alphabet, Amazon, and Apple, alongside industrial companies like Caterpillar and Boeing.

The Dow rose 472.51 points to 47,207.12. The S&P 500 increased by 53.25 points to 6,791.69, while the Nasdaq gained 263.07 points, reaching 23,204.87.

Alphabet gained 2.7% following a deal expansion with Anthropic. Coinbase saw a 9.8% increase from a JPMorgan upgrade. In contrast, Deckers Outdoor’s shares fell 15.2% after lowering sales forecasts.

Market Trends

Advancing stocks on the NYSE outnumbered decliners by 2.18 to 1. The S&P 500 had 34 new highs, with the Nasdaq recording 124.

Trading volume was 19.04 billion shares, lower than the average of the past 20 days.


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US stocks face tests from Tesla, Netflix earnings

US markets brace for Tesla and Netflix earnings amid rising volatility and delayed inflation data

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US markets brace for Tesla and Netflix earnings amid rising volatility and delayed inflation data

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In Short:
– Earnings reports from Tesla and Netflix might affect U.S. stock performance next week amid high inflation concerns.
– Increased market volatility arises from U.S.-China trade tensions and fewer S&P 500 stocks in an uptrend.
This coming week, earnings reports from companies including Tesla and Netflix are anticipated to impact U.S. stock performance.
Investors are also awaiting delayed U.S. inflation data, which could test market stability as it remains near record highs.Recent trading activity has shown increased volatility, influenced by ongoing U.S.-China trade tensions and concerns regarding regional bank credit risks. The CBOE volatility index has seen a rise, indicating increased market uncertainty.

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The S&P 500 entered its fourth year of growth amidst these fluctuations, having previously experienced a period of calm. Experts suggest market risks are intensifying as valuations reach peak levels.

Market Volatility

Concerns regarding U.S.-China trade relations escalated last week when the U.S. threatened to raise tariffs by November 1 over China’s rare-earth export policies. President Donald Trump is scheduled to meet with President Xi Jinping in two weeks to discuss these issues.

Despite these challenges, major stock indexes gained ground over the week, with the S&P 500 up 13.3% year-to-date. However, a noticeable decline in the number of S&P 500 stocks in an uptrend raises caution among investors about underlying market weaknesses.

The upcoming third-quarter earnings will be closely monitored, especially as the government shutdown halts economic data releases. Companies like Procter & Gamble, Coca-Cola, RTX, and IBM are due to report. The delayed U.S. consumer price index is also expected to provide crucial insights ahead of the Federal Reserve’s monetary policy meeting on October 28-29.


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