Bain Capital, owner of Virgin Australia (ASX:VAH) is reported to have pushed back the airline’s IPO until the March quarter 2024.
Initially, the $3 billion-plus stock market listing was slated for November this year, however it seems investors are waiting to assess Qantas’ recovery and its vow to win back customers including making flights more affordable – a move that investors are wary of.
In the background Virgin CEO Jayne Hrdlicka has instructed executives to focus on Virgin’s rebuild into a profitable business.
If it can pull that off, Virgin’s recovery from life support during COVID to thriving Australian airline could get investors excited.
In Hrdlicka’s eyes, the problems with Qantas are just a distraction to be ignored and she has urged executives to leave the ASX listing to Bain.
So far so good.
For the first time in eleven years, Virgin has recorded a statutory net profit after tax of AU$129 million for the financial year ended June 30, 2023 (FY23). Revenue soared by 124% year-on-year to reach AU$5 billion, while the profit was a significant turnaround on the FY22 loss of AU$565.5 million.
Time could provide a strong IPO
Virgin seems to be rapidly on the mend and demand continues to outstrip capacity, which augers well for the future.
Hrdlicka is rebuilding Virgin from the ground up, with a lower cost base: the airline has written off much of its debt. Net debt is now $1.2 billion, but it has a $1 billion cash pile on the balance sheet.
Its Velocity loyalty business continues to grow, delivering a 30% jump in earnings to $77 million.
Operating margins are also robust at 8.8%.
The latest results are a major milestone for Virgin Australia (ASX: VAH).
They will feed into the $110 million refurbishment including the rollout of in-flight Wi-Fi and an overhaul of economy and business class seats.
Total fleet will sit at 99 after the arrival of new fuel-efficient Boeing 737-8 aircraft.
So, with a new focus on sustainable profit, not market share growth, the wrestle between Qantas, which holds a 65% share of the market and Virgin, which has between 30 and 3% could change significantly.
Bain will win with IPO no matter when
Bain acquired Virgin for just under $600 million three years ago.
It now has a book value of $2.2 billion.
Bain Capital sees mixed signals for Virgin Australia IPO amid aviation market volatility
Bain Capital has reaped a substantial A$730 million payout from its investment in Virgin Australia, partially financed by a bridge loan, indicating positive financial prospects barring another crisis on the scale of Covid-19. However, Bain has not yet disclosed a specific timeline for an IPO for the airline, stating only that it plans to maintain a significant shareholding post-listing.
Global airline stocks have witnessed a decline from their mid-July peaks, casting doubt on the sector’s post-pandemic boom. For instance, Qantas shares have dropped 25%, while American Airlines and Delta have seen declines of 34% and 27%, respectively. The contraction is not limited to the United States; Singapore Airlines and International Airlines Group (IAG) are down 17% and 14%, respectively.
High demand for air travel exists, but rising interest rates are limiting discretionary spending. Added capacity in the form of new flights and routes is making it challenging for airlines to pass on increased costs, such as fuel and inflation, to consumers via ticket pricing.
For Bain, the timing of Virgin Australia’s IPO is crucial. Holding onto the airline too long could risk launching an IPO during a period of stagnated growth, echoing past industry oversupply issues. Conversely, moving too early could mean selling the airline in a market pressured by rising interest rates.
