The IPO market is only just recovering from a major slump, and Virgin Australia’s soaring valuations have infused much hope and enthusiasm in the listings market.
The initial public offering (IPO) market has witnessed a string of successes in the past few weeks, slowly gaining momentum after a series of setbacks and hesitation from companies. The most recent success story is the 8.3% surge in Virgin Australia‘s shares during its IPO, which raised the airline’s valuation to A$685 million ($439 million). This Virgin’s debut run on the Australian Securities Exchange (ASX).
The IPO market is only just recovering from a major slump, and Virgin’s soaring valuations have infused much hope and enthusiasm in the listings market. Of the 236.2 million shares sold, each was priced at A$2.90, valuing the company at A$2.32 billion on a fully diluted basis. The stocks began trading at A$3.14 and quickly overtook the 1.2% gain in the Australian benchmark S&P/ASX200.
With rising geopolitical tensions, particularly surrounding the Israel, US and Iran conflict, airlines are rerouting and cancelling flights due to closed airspaces or anxiety over safety. Virgin Australia also faced certain operational challenges with two Qatar-bound flights to India and Oman being diverted. This was a result of Qatar temporarily closing its airspace ahead of Iran launching missiles at a US base in its territory. Despite these challenges, the airline has exceeded expectations in the capital market.
Virgin’s rival Qantas reported a 4% jump in shares after oil prices dropped 7% globally on Monday. Oil lost more than $5 a barrel due to Iran’s lack of action to disrupt oil and gas tanker traffic through the Strait of Hormuz. Brent crude futures declined 7.2% at $71.48 a barrel, and US West Texas Intermediate crude (WTI) also fell 7.2%, settling at $68.51.
In an exchange filing, Virgin said that it has hedged 98% of its expected fuel usage in Brent crude oil, setting an upper limit of $70 a barrel for the first six months of 2026. For the second half of next year, it has hedged its fuel usage expectations at 86%, and for the same price.
Australia’s second-largest airline by market share, Virgin, follows Qantas Airways and was delisted in 2020 after US-based Bain Capital, a private equity firm, bailed out the airline company from its administrative incapacity after purchasing it for A$3.5 billion, including liabilities. However, Bain is set to reduce its 70% share to roughly 39.4%. The IPO prospectus also revealed that Qatar Airways, which recently became one of Virgin’s partners, will retain its 23% stake.
Reuters reported that the demand for the IPO was so strong, with institutional investors placing indicative orders, which exceeded the offering size during book building. Market analysts said that the share prices being 30% lower than those of Qantas was an incentive for investors to buy more of Virgin’s shares.
The airline is not presently seeking to raise funds through the IPO, but instead is focused on returning a larger portion of the stake to the original owners who have had their portions reduced. According to Chief Executive Dave Emerson, Virgin does not need to raise funds through this float, and its strong balance sheet is proof of its ability to fund its fleet expansion without additional equity.
Jun Bei Liu, founder of Ten Cap, which is a key investor in Virgin, explained that as the IPO pricing allowed discounts to Qantas, shareholders profited from the airline’s operational improvement targets and other logistical factors like premium ticket demands increasing.
Despite the existing geopolitical risks, Virgin has been able to withstand these shocks due to hedged fuel and its focus on domestic operations. The company had reduced its international flight services after Bain took over, but has since resumed long-haul flights to Doha through a lease agreement with Qatar Airways.