Australia’s second-biggest airline is expected to have one of the country’s largest listings in 2023. Find out everything we know ahead of the Virgin Australia IPO.
What do we know about the Virgin Australia IPO?
Virgin Australia owner Bain Capital has sent a request to several banks for proposals on an initial public offering (IPO). Reunion Capital has been appointed as financial advisor and will be overseeing the appointment of an investment bank, according to Reuters.
Bain Capital intends to retain a significant shareholding in Virgin Australia following its listing. The size of the stake it will sell is unknown, which makes forecasting the deal size difficult at the moment. But equity-led IPOs of this kind would typically see the parent company sell at least 50% of their stake.
This is likely the main reason behind the IPO – giving Bain a chance to cash out on its ownership. This has caused a lot of scepticism over the listing, as it could mean the private-equity firm keeps any capital gains for itself and doesn’t share them with investors.
Another reason for market scepticism is that Virgin Australia entered administration three years ago, and hadn’t seen profits for several years before that – we’ll get into that more in a moment.
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When is the Virgin Australia IPO?
There’s no set date for the Virgin Australia IPO yet and the company will be waiting for the right market conditions.
Despite the market for new listings plunging in 2022 amid global financial uncertainty, the company seems set on a 2023 listing. The equity markets may be improving slowly, but the Australian aviation market is set to bounce back strongly from pandemic lows, which could warm investors to the Virgin Australia IPO.
How much is Virgin Australia worth?
Bain Capital bought a 95% stake in the business for $2.45 billion in 2020. Shortly after, equity stakes were taken by Virgin Group and Queensland Government which implied the company had a market value of $1 billion.
In early February 2023, Virgin Australia issued its management team almost 2 million shares at $2.10 each. The previous valuation of the management equity plan had its shares at $1 each, indicating that Bain has upped its valuation internally ahead of the IPO.
How to trade Virgin Australia stock
When Virgin Australia lists, you’ll be able to trade its shares in the same way you would any other stock on the market – going long if you believe it will rise in value, and short if you think it will fall.
In the meantime, you can trade thousands of shares with City Index in these easy steps:
- Open a City Index account, or log in if you’re already a customer
- Search for the company you want to trade in our award-winning platform
- Choose your position and size, and your stop and limit levels
- Place the trade
Alternatively, you can practise trading shares in a risk-free demo account or learn more about how to trade an IPO
What does Virgin Australia do?
Virgin Australia is an airline carrier that operates out of Australia. The company was founded in 2000 as a low-cost carrier and first listed on the ASX in 2003, but quickly evolved its strategy to compete with the likes of Qantas – which many argue was a mistake.
Despite gaining market share in the domestic market, Virgin Australia was unprofitable for many years due to the high amount of debt it took on to be competitive against international airlines. And then Covid-19 struck the travel industry.
Virgin Australia’s troubles were emphasised by the fact it had investors who controlled more than 90% of the company but wouldn’t inject new capital into the business. This was mainly due to the fact their other businesses were also impacted by the equity downturn.
However, since being bought by Bain Capital, it’s become a more efficient company with a healthier balance sheet. Bain’s purchase wiped the company’s debt out and refocused the firm on domestic, short-haul routes.
It is expected to expand to international travel with Cairns-Tokyo flights by mid-2023, but won’t be trying to be a Qantas 2.0 again.
Is Virgin Australia profitable?
Yes, according to an internal announcement by Virgin Australia’s chief executive Jayne Hrdlicka, the company made a profit margin of roughly 5% on its first-half 2023 revenues.
Virgin made about $2.5 billion – with earnings expected around $125 million. This means the company made more in those six months than over the entire previous year, and its profit margin would be the best since 2007.
Although Virgin Australia still has a way to go to get back to the 12% profit margins that it had before 2007, management remains optimistic that the boost to tourism will continue fuelling growth.
Who are Virgin Australia’s competitors?
Virgin Australia’s largest airline competitor is Qantas Airways – which owns Jetstar Airways too. Currently, Qantas has an around two-thirds share of the Australian domestic market.
When it entered administration, Virgin held 20% of the Australian domestic market and has still managed to hold its share. By early 2022, it briefly held the title of the largest domestic airline.
It will be difficult to take back market share given how much of the international market Virgin Australia ceded to Qantas during the last few years but it plans to focus on retaining its domestic share.
Who owns Virgin Australia?
Virgin Australia is majority owned by Bain Capital, which has a 95% stake in the business. The other 5% is owned by Virgin Group and the Queensland government.
Virgin Australia’s management team
Currently, Virgin Australia’s management team contains:
- Jayne Hrdlicka, CEO and managing director
- Lisa Burquest, Chief people officer
- David Hogard, Chief information officer
- David Marr, Chief financial officer
- Stuart Aggs, Chief operations officer
- Brooke Connel, Chief legal officer and company secretary
- Elizabeth Minogue, Chief marketing officer
- Chelsea Scott, Safety and emergency procedures instructor
- Paul Carroll, Group head of revenue management