VIRGIN AUSTRALIA: IPO in 2023?

Let me drag you back to the beginning of the pandemic and early 2020, when Virgin Australia went into administration. It was then sold to Bain Capital who against previous promises installed alumni Jayne Hrdlicka as CEO.

Well, looks like Bain Capital is going to ‘strip and flip’ Virgin Australia much earlier than it had anticipated.

With air passenger traffic in Australia almost back to pre-COVID-19 levels, and the airline back in profit, it seems like Hrdlicka might go public sooner than expected, saying to The Australian today that it was ‘not outside the realm of possibility’.

So, we might see an initial public offering of Virgin Australia as soon as 2023.

Hrdlicka has said that the airline is experiencing record leisure demand and is already in profit, registering surprise in only the way a salesperson can at the quick recovery of the airline post administration.

Background

Virgin Australia carries about AU$1.8 billion in debt, so whoever buys the airline will inherit that – a much better position than the over AU$5 billion debt the airline had before administration.

Hrdlicka eliminated VA’s international Boeing 777s and has essentially made it an all 737 airline servicing domestic destinations, some pacific routes (New Zealand, Fiji, Samoa, Solomon Islands, Vanuatu) and Bali.

That alone makes the airline more efficient. It is no longer bleeding on its international ambitions through servicing the USA and other ports. With patronage returning to pre-COVID levels, a more efficient fleet, and much reduced debt, the IPO could be one to watch.

The Australian Competition & Consumer Commission this week released data confirming Virgin had a domestic market share of 33 % in the first three months of 2022. That is roughly their stated target for market share when they launched out of administration.

2PAXfly Takeout

This is another timely reminder to wear your seatbelt when seated. Holding you close to your seat will protect you from the sort of injuries sustained on this flight, when unsecured passengers flew to the ceiling of the aircraft, and then came crashing down once the ‘drop’ ceased.

The hope will be that this is an anomaly – a ‘freak accident’ in casual parlance. If it is a systemic error either mechanical or electronic, then this is a larger concern for the airlines that fly Boeing Dreamliner 787 aircraft. Let’s hope it isn’t. If it is, it will pile on the woes to Boeing’s existing stack.

Virgin Australia has done an amazing job of re-birthing the airline post administration. It’s providing business class airfares less than half the price of Qantas on many routes, and is experiencing around 130% of pre-COVID demand. It’s refreshed the Melbourne lounge, and provided a new lounge in Adelaide. It’s re-launched its invitation-only elite membership and lounges, and also closed a few facilities in less well, or no longer serviced destinations.

As I have said before, my only hesitation in becoming a more loyal patron of the airline, is the appalling nature of its T2 terminal in Sydney, my home city. It’s such a trial to depart from, and the lounge is tiny and overcrowded. I’m happy to fly into the terminal, just not depart from it. If they did something about sorting out check-in, expanded the floorspace of the lounge and reopened their Sydney Premium Entry, I would definitely become a fanboy.

Would I buy shares, like I have in other Australian based airllines – probably.