Virgin Australia Holdings (VGN) – Smooth air

Virgin Australia is the nation’s No.2 airline and offers domestic air services under its own brand and overseas travel via its international partners, which include Qatar Airways, Singapore Airlines, United Airlines, Air Canada, Air New Zealand, Hawaiian Airline, and All Nippon Airways, and owns the Velocity loyalty business. The company was founded in 2000 and is headquartered in South Brisbane, Australia.

Virgin Australia reiterated guidance for growth in revenue per available seat kilometre (RASK) of 3–5% in the first half of FY26 on a year ago, underpinned by strong demand and operational performance, and guided to capacity growth of 2% in the second half. As with rival Qantas Airways (QAN), the focus for Virgin will be on how it deals with sharply higher jet fuel spreads, noting recent data from industry group IATA shows average global jet fuel prices jumped circa 8% in the last two weeks of October alone, while the refiners’ jet fuel crack spread – the price difference between crude oil and refined products – in October was up almost 40% on the crack spread in September.

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The trading update gave Ord Minnett confidence the near-term outlook is sound, given Virgin’s hedging program, which incorporates the jet fuel spread, means recent rising fuel prices will have little effect on FY26 earnings. Post FY26, we expect higher fuel costs will be mostly, but not all, offset by management of the RASK metric, i.e. some mix of higher ticket prices and reduced capacity.

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Post the trading update, we have nudged our FY26 EPS estimate down 0.3%, while our FY27 and FY28 forecasts are cut by 2.8% and 3.1%, respectively, to incorporate the impact of fuel costs, which leads us to trim our target price to $4.00 from $4.10. We maintain our Buy recommendation.