After undergoing bankruptcy restructuring and delisting in 2020, Virgin Australia recently announced its re-listing on the Australian Securities Exchange (ASX) on June 24th, under the stock code VGN. After nearly five years, what changes has Virgin Australia undergone? As it re-embarks on its journey, how should its value and prospects be viewed?
Virgin Australia
Delisting Due to Debt Restructuring
In April 2020, impacted by the COVID-19 pandemic, Virgin Australia plunged into massive losses and a cash flow crisis. Burdened by approximately AUD 5 billion in debt, the company ultimately announced it was entering voluntary administration, becoming the first major Australian airline to fall during the pandemic.
Subsequently, its shares were suspended from trading on the ASX, and the company's debtors began seeking buyers for restructuring. In June 2020, U.S. private equity giant Bain Capital successfully bid AUD 3.5 billion to acquire and take over the company. In November of the same year, with court approval for the transfer of shares to Bain Capital's controlling entity, Virgin Australia officially delisted from the ASX. This delisting process also caused severe losses for approximately 20,000 small shareholders, who received almost no compensation, triggering significant controversy.
Bain Capital's Business Restructuring Strategy
Over the four years since Bain Capital took control of Virgin Australia, it has implemented a comprehensive transformation, leading the company back from its debt crisis through a more precise positioning, as well as simplification of services and assets:
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Repositioning: No longer pursuing a full-service airline model to directly compete with Qantas, but rather returning to the mid-tier value airline segment, primarily targeting leisure travelers and the small to medium-sized enterprise travel market.
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Strategic Partnerships: Established a strategic partnership with Qatar Airways, sharing flight resources to expand into international markets.
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Route Optimization: Significantly streamlined international and long-haul routes, retaining only a few popular destinations, with a strong focus on Australian domestic routes.
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Fleet Standardization: Completely phased out A330 and 777 wide-body aircraft, transitioning to an all-Boeing 737 fleet to reduce maintenance and operating costs.
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Service Streamlining: Eliminated free hot meals, free baggage services, and standard lounge access, offering flexible package combinations and generating revenue through ancillary services.
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Profit Model Reinvention: Strengthened the Velocity loyalty program, and leveraged derivative revenue sources such as co-branded credit cards and travel platforms.
The company's re-listing prospectus, released last week, disclosed its latest FY24 performance. It shows that the company's FY24 revenue recovered to AUD 5.4 billion, a decrease from the AUD 5.8 billion revenue in FY19 (pre-delisting and pre-pandemic). However, the company's profitability significantly improved, with adjusted EBITDA reaching AUD 850 million in FY24, substantially exceeding the approximately AUD 470 million in FY19. It also achieved a net profit of AUD 260 million. In FY19, the company was facing severe losses. The current net debt of around AUD 1.3 billion has also significantly improved.
While this series of business restructurings led to a certain contraction in the company's business scale, the company's profitability has clearly improved significantly compared to pre-pandemic levels, and its debt structure is healthier.
Meanwhile, Virgin has maintained its competitiveness in the Australian aviation industry in recent years. As of the end of FY24, Virgin Australia remains the second-largest brand in Australian civil aviation with a market share of 32%, slightly below Qantas's 38% and above Jetstar's 25%. After experiencing bankruptcy and shutdowns, Virgin Australia's market share has even seen a small increase compared to pre-pandemic 2019.
IPO Key Information
In this IPO, Virgin Australia plans to issue 236.2 million ordinary shares at an offer price of AUD 2.90, raising a total of AUD 685 million. The funds will primarily be used to further repay debt, optimize its balance sheet, and support investment in the company's digital services. After the IPO share dilution, Bain Capital's stake in Virgin Australia will decrease from 70% to less than 40%; strategic partner Qatar Airways will co-invest, maintaining its stake at 23%; and employees and management will collectively hold 6.4%, serving as a strengthened incentive mechanism. Virgin Australia's IPO valuation is AUD 2.3 billion, with an enterprise value of AUD 3.62 billion. Based on the company's FY25 earnings forecast, this reflects an EV/EBITDA of 4x and a P/E ratio of 10.5x (pre-adjustment data).
Outlook
Virgin Australia's re-listing has the opportunity to become one of the most closely watched IPOs on the ASX this year. From the company's prospectus, it appears that after nearly five years of restructuring, Virgin Australia has clearly become a higher-quality investment target than before the pandemic. It maintains competitiveness in the domestic airline market, while its profitability has significantly improved, and its balance sheet is markedly better.
From the perspective of the IPO price valuation, a P/E of around 10x and an EV/EBITDA of around 4x are lower than Qantas's 13x P/E and 5x EV/EBITDA, indicating a certain level of valuation attractiveness. It has the potential to change Qantas's dominant position as the sole Australian aviation sector target in the capital market, and even attract some of Qantas's investors.
However, a decline in macroeconomic tourism consumer confidence, unstable fuel prices, and limited international business expansion could all restrict the company's short-term or long-term performance. Overall, Virgin Australia leans towards being a traditional, stable investment target.
Invesight Viewpoint
The relisting of Virgin Australia is one of the landmark events in Australia’s post-pandemic business revival. It represents the process of a brand regaining investor trust after undergoing bankruptcy, restructuring, and strategic transformation. For capital market investors, this is a high-quality IPO with a clear business model, restored profitability, competitive market positioning, and reasonable valuation. Virgin not only symbolizes an opportunity for the recovery of the aviation industry but also serves as a model of successful corporate strategic transformation. However, it is essential to rationally assess individual risk-return needs, as well as the risks posed by factors such as industry cycle downturns and limited long-term growth potential. $Virgin Australia Holdings Ltd(VGN.AU)$
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