Virgin Australia Boss Brushes Off Mideast Fears as Shares Debut

(Bloomberg) -- Virgin Australia Holdings Ltd. Chief Executive Officer Dave Emerson brushed away concerns the Middle East conflict will disrupt demand for travel as the airline returned to the stock exchange in Sydney in a A$685 million ($440 million) initial public offering.

After years of planning, the Bain Capital-backed carrier resumed trading on Tuesday. The first shares changed hands just hours after Iran’s retaliatory missile attack on a US air base in Qatar, and an announcement by President Donald Trump that Israel and Iran had agreed to a tentative ceasefire.

The stock jumped as much as 9.7% in the first minutes of trading. The US buyout firm sold 30% of Virgin Australia for A$2.90 a share.

While Virgin Australia generates most of its profit from the Australian market, the company has significant ties to the Gulf region. Qatar Airways owns about 25% of the airline, and Virgin Australia operates long-haul flights to Doha from Australian cities using aircraft leased from Qatar Airways. Some of those services were diverted following the temporary closure of Qatar airspace.

In an interview on Monday, Emerson was pragmatic about the timing of the long-awaited IPO, which exposes Virgin Australia to broader market turmoil and coincided with the biggest upheavals in the Middle East in years. “That’s aviation,” Emerson said. But he said Virgin Australia is largely insulated from the region. 

“Our expectation is that the Australian domestic market will continue to be relatively unaffected and that demand will remain strong,” Emerson said. “The Australia domestic market has been incredibly resilient historically to these global geopolitical shocks.”

Virgin Australia was founded as a budget carrier in 2000 with start-up capital from Richard Branson. It later moved away from a low-cost model in an ill-fated attempt to compete head-on with Qantas Airways Ltd. Saddled with debt, Virgin Australia became the first high-profile airline casualty of the pandemic when it collapsed in 2020. 

Bain Capital bought the business the same year and has transformed the company. With a simpler fleet, reduced costs and less debt, Virgin Australia has now strung together consecutive annual profits.

The IPO ensures an even sweeter payout for the buyout firm after its bold bet on the defunct airline. Bain Capital paid about A$730 million for Virgin Australia’s equity five years ago. 

Since then, the firm has recouped more than A$1 billion in capital returns and dividends, according to the listing prospectus, in addition to the stake sale to Qatar Airways. Bain still owns around 40% of Virgin Australia.

Middle East tensions aside, Virgin Australia is listing at a favorable moment that won’t last forever, some analysts argue. The limited supply of aircraft globally since Covid-19 has led to fuller planes and higher ticket prices. At the same time, the recent collapses of smaller Australian airlines Rex and Bonza have reduced competition. The same conditions have sent the share price of Qantas soaring to a record.

Emerson says there’s more growth to come. “I don’t see the market as having peaked,” he said.

And he doesn’t expect an imminent solution to the shortage of aircraft.

“That’s likely to continue for three to five years,” he said. “The ability of the manufacturers to scale up remains very constrained.” The lack of new jets also makes it tougher for rival airlines to enter the Australian market, he said.

“It’s a great time to be an almost wholly Australian-focused airline,” he said.

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