There’s an old saying in capital markets: “Feed the ducks while they’re quacking”. It’s a metaphor for giving investors what they want while demand is at its highest. With market conditions for the highly cyclical airline sector being about as good as they’re going to get, Virgin Australia appears to be moving forward with long-awaited plans for an ASX relist and IPO.
As a prelude to Virgin’s relist 2.0, following a failed IPO attempt in 2023 – due to weak demand – the airline’s new management team, fronted by newly appointed CEO David Emerson, is understood to be doing the rounds with investors.
Virgin’s ASX relist 2.0
While meetings appear to be on the downlow, there’s strong expectation that the airline will find itself back on the main board of the ASX by the end of this year.
As the number two player within Australia’s airline duopoly, Virgin will expect its float to benefit from the backdraft of Qantas’ recent performance.
Having reported an underlying profit before tax of $1.39 billion, an 11% increase compared with the same period last year, Qantas has resurfaced phoenix-like from the ravages of an ACCC’s enquiry which accused the airline of false, misleading or deceptive conduct.
The market appears to have overlooked Qantas’ dark days with the national carrier’s share price up around 80% in 12 months.
Headwinds
While Virgin’s float may bask in some of its rival's success, optimal market conditions for an IPO and future airline growth appear to be hitting some headwinds.
For example, last week alone, four U.S. airlines trimmed their outlooks, citing weaker consumer demand amid broader market uncertainty around Trump’s trade tariffs and other reforms.
One of the biggest cost imports affecting all airlines, jet fuel, is projected to rise to $115 per barrel in 2025.
Passenger demand is up
According to ATPI’s Airline Industry Outlook, the global airline industry is set for a positive 2025, with capacity and passenger demand expected to exceed pre-pandemic levels.
However, the report flags key challenges such as supply chain disruptions, geopolitical uncertainties, with rising operational costs continuing to shape the industry’s trajectory.
The report also singled out both Qantas and Virgin for experiencing supply and maintenance challenges, further delaying full recovery.
Are local investors biting?
Meanwhile, Dave Emerson who took over from former fellow consultant with private equity U.S. firm Bain Capital, Jayne Hrdlicka, has been tasked with convincing local fund managers to support the airline’s re-listing on the ASX.
Formerly, the airline’s chief commercial officer, Emerson will hope Virgin’s ASX relaunch 2.0 makes a better fist of being a publicly-listed company than former CEO Paul Scurrah who was ousted following the airline’s near collapse.
Virgin entered into administration in April 2020 under the strain of the Covid pandemic – owing $6.8 billion to creditors including employees, bondholders and customers.
Virgin subsequently delisted from the ASX and fell under Bain's control which bought the ailing airline for $3.5 billion including liabilities in 2020.
June quarter float
Meantime, it's understood that Bain and its bankers and lawyers (Barrenjoey, Goldman Sachs, UBS, Reunion Capital and Gilbert + Tobin) have been dusting off the initial prospectus they prepared over a year ago.
There’s also growing speculation that Bain will push the button on Virgin’s float during the June quarter, knowing full well that bookings from the recently penned Qatar alliance will flow through to top-line growth.
However, assuming Bain fails to float during the June quarter, the doors for any future float may be closing fast, at least for now.
Investors trying to work out what a relisted Virgin could be worth may want to look to the recent deal with Qatar for clues.
Assuming market speculation is right, and Qatar paid $750 million for a 25% stake, Virgin could be worth around $3 billion.
