Virgin Australia (VGN) – Virgin rises

Virgin Australia Holdings provides domestic and international travel services to leisure, corporate and government, regional and charter travel, and air freight customers in Australia and operates through the Velocity loyalty program. It has strategic alliances with Qatar Airways, Singapore Airlines, United Airlines, Air Canada, Air New Zealand, and ANA. The company was founded in 2000 and is based in Brisbane.

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Ord Minnett has initiated coverage on Virgin Australia Holdings with a Buy recommendation and a target price of $3.65, underpinned by our view the resurrected airline can grow unit revenue at a faster rate than inflation as it makes the most of low oil prices and a structurally lower cost base post its administration, in what is a favourable broader environment for Australian airlines.

Virgin is well-placed in terms of fleet renewal requirements, its aircraft having an average age of 13 years, versus 16 years for arch-rival Qantas Airways (QAN) and a typical commercial aircraft life span of around 24 years. It also has sufficient balance sheet capacity to fund any new aircraft and expansion. Our expectation is for capital expenditure of $800–900 million over FY26–FY28 that would drive growth in seat numbers of 3% per annum. The Australian market for air travel is supported by a lack of long-distance alternatives that other countries enjoy, such as high-speed trains, with locals averaging 3.5 flights per annum, around double the developed world average.

We have arrived at our $3.65 price target by valuing Virgin on a one-year forward price-earnings multiple of 8x, which aligns with the airline’s global comparable peer valuations.

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