June 26, 2025 • 18 mins
Virgin Australia is back on the ASX after a five-year absence, marking the biggest IPO so far this year. Once grounded by the pandemic, the airline is now making money again and flying under new leadership.
This week on the podcast, Rebecca Jones talks to Angus Whitley about the airline’s financial reboot, its rivalry with Qantas, the risks of private equity ownership, and whether this new Virgin can deliver for both investors and travelers.
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Speaker 1 (00:01):
Virgin Australia is feeling the impact of COVID nineteen.
Speaker 2 (00:04):
There's no doubt about that.
Speaker 1 (00:06):
Virgin Australia has just gone into voluntary administration.
Speaker 3 (00:10):
Bain Capital has bought Virgin Australia.
Speaker 1 (00:13):
After twenty four years of flying, Virgin is floating. Virgin
Australia's relaunch on the Australian Stock Exchange has been a
long time coming. Virgin's had quite the ride over the
past five years. It was the first airline to go
under during COVID, got snapped up by an American a
private equity giant, landed an investment from Katar Airways, and
(00:37):
this week made its comeback on the AX as Middle
East turmoil whip sword markets. So what is next for
Australia's second biggest airline. Hello, I'm Rebecca Jones and welcome
to the Bloomberg Australia Podcast. Today we dive into the
Virgin Australia IPO, the biggest listing on the ASEX so
(00:58):
far this year. Well, it is technically a relisting if
we're being precise to examine what it's return means for investors,
consumers and the airline industry. I'm joined by Angus Whitley,
global business reporter for Bloomberg News who writes about aviation
and has spoken this week to the company's new CEO.
Angus joins me today from Sydney. Angus, I'm going to
(01:20):
try and lay off the flying puns and I will
commit to that, but just let me let me sneak
in one more. The last five years have been pretty
turbulent for Virgin Australia. Can you give us a potted
history of what's happened since the dark days of twenty twenty.
Speaker 3 (01:37):
The dark days of twenty twenty really were when the
start of the pandemic, weren't they. I mean, Virgin Australia
did not last long when the pandemic granded global aviation.
Speaker 2 (01:49):
It was saddled with debt.
Speaker 3 (01:51):
And once it couldn't fly anywhere, it really could serves
the debt, so it was paralyzed. So Virgin went under.
Attempts to see government help failed. And you remember, according
to CEO Alan Joyce at the time lobbied against that.
So it was cutthroat. It was cut throat stuff.
Speaker 2 (02:08):
There were layoffs.
Speaker 3 (02:09):
Since then, Virgin Australia has gone through three different CEOs.
They've undertook years of planning for the IPO through their
majority year in a Bane Capital.
Speaker 2 (02:19):
At the time, there was at.
Speaker 3 (02:21):
Least one false start, one failed attempt to list when
the listing window closed, and now we're here, so that
now they're stringing together consecutive profits.
Speaker 2 (02:31):
They recorded the first profit in eleven.
Speaker 3 (02:33):
Years, would you believe, in twenty twenty three, So this
was not a company that made money on any regular
basis before and now they're set to record three annual
profits in a row. So they've really they've come a
long way since those, as you say, dark days of
twenty twenty and he's a pretty different airline.
Speaker 1 (02:51):
Of course. Shares have just started trading on the Australian
Stock Exchange on Tuesday afternoon, angus, how did they go
on day one? And what does that tell us?
Speaker 3 (03:00):
Yeah, Bain Capital, which still owns about forty percent of
Virgin Australia's sold a thirty percent steak in this IPO
at two dollars ninety share and the stock closed at
three dollars twenty three, so that was eleven percent pop
on the first day, which you know, that's that's pretty good.
That tells us that Bain left something on the table,
(03:22):
as they say, for the new investors. But also I
think it's a remarkable result really when you think of
how they managed to thread this needle and get the
IPO away given all the developments, the fluidity, the fast
moving developments in the Middle East, that was really you know,
affecting global sentiment. Doesn't matter whether you're an Australian line
(03:45):
or an Australian company. The IPO was hours after Iran's
retaliatory strikes in Qatar and hours just hours after the
sea spar trumps and sea spar between Israel and around
So if they started treating a few hours earlier, Gin
be in a different story. But things really did fall
for them. That's why they got an eleven percent pop.
Speaker 1 (04:07):
And we're recording this on Wednesday, and of course things
are still quite volatile and could be we could be
in a different situation right when this episode comes out
on Thursday. I am interested acusing the word on the street.
Is it supporting this narrative? Bin being the smartest kids
on the block here, right, Are the analyst telling you
(04:29):
that the IPO valuation is about right or do they
think it's overvalued?
Speaker 2 (04:36):
Yeah? Good point.
Speaker 3 (04:37):
I mean you're buying an asset of a private equity company,
you know there's lots of pitfalls there that they know
the asset better than anyone, and if you're a new
investor coming, you don't know anything about the asset really,
all you know is a prospectives. It's a bit like
buying a secondhand car. You might have the service record,
you'll have the price, and you'll know in the owner.
(04:58):
You have a perspectus in the sense of an IPO,
but you don't really know too much about the inner
workings of the company. So that's what puts people off
buying assets from private equity because you know they've stripped
tat costs, which Bain has in the case of Virgin Australia,
and it's a good time for them to sell. Does
that make it a good time to buy, You know,
(05:19):
that's questionable. However, the Australian analyst community is largely full
of bulls. If you look at the analyst ratings for Quantas,
for example, there's only one seller and that's morning Star,
and that's partly because it's a duopoly. Quantus and Virgin
largely share the entire market. Maybe you can't make money
(05:40):
in a diopoly, you know you're doing something wrong.
Speaker 2 (05:43):
So was the IPO valued.
Speaker 3 (05:45):
I think the trade on the first details of something
the spoils were probably evenly spread between Bain and the
new investors. I mean Bain raised more than six hundred
million Australian dollars. The investors made a more than ten
percent returning in the day. It's too early to say
what the market thinks of Virgin Australia stock. Now we've
(06:07):
only got one analyst rating on the terminal that's from CLSA.
They haven't accumulate rating, but the stock is already above
clsa's timet price.
Speaker 2 (06:17):
So time will tell. But it's very early days.
Speaker 3 (06:22):
But from the first day's performance, I think both being
and the new investors would pretty happy.
Speaker 1 (06:28):
I want to talk about oil prices because oil prices
and the aviation industry they're extricably linked. We've seen those
prices tumble this week as tensions have appeared to ease
in the Middle East. But as I said before, it's
still a very volatile situation over there, and these sorts
of crisis can hit the global demand for travel. Not
(06:51):
to mention Virgin significant ties to the golf regent via
it's cut our airways stake and long haul flights to
Doha etc. What did the new CEO, Newish CEO, Dave
Emerson and Virgin Australia have to tell you about that
when you spoke to him.
Speaker 3 (07:07):
Dave Emerson is the is the new CEO, and actually
this was his first outing with media on Monday. He'd
been really working pretty hard on the IPO. I think
hadn't met the media. I spoke to him on Monday
night and the eve of the IPO when Middle East
tensions were really at a peak and aatly It's one
(07:27):
of my first questions, how do you feel about listing
in this kind of environment. So it is true that
Virgin in Australia has deep ties to the region. I
mean Katar airway zones twenty five percent of the airline.
Vergin Australia runs its long whole routes into Doha used
(07:48):
in Katar Airways aircraft and that's how it advertises itself
as a kind of Australian airline that offers long haul connections.
But at the same time it's it's low risk, low
return strategy because Virgin Australia is not running its own aircraft.
It's not getting huge returns. Really, that connection with Katar
(08:10):
really serves to feed customers on to Virgin's domestic network
and that's where Virgin likes to make money. It's where
it does make money. And why wouldn't You're part of
a geopoli much better for Virgin to compete in the
domestic market than it is in the international market. So
that's one aspect of that Middle East ties. Now, Emerson said,
(08:33):
of course, if this lasts more than six months, then
then it starts to have an impact on all airlines.
You know, all prices might rise, that would hurt all airlines.
It's usually the first or second biggest cost for any airline.
But for the moment, Virgin Australia is actually pretty well
hedged for fuel costs for the next six months. So
(08:54):
he was pretty pragmatic about listing in this environment. His
words were that aviation, and of course it is aviation
always goes through these geopolitical ruptures, doesn't it, And it
always seems to come out the other side somehow because
people still want to fly ankers.
Speaker 1 (09:13):
You've covered Australia's airline industry for more than a decade
and we know that last time Virgin was listed on
the asxxit it had a bit of a tough time.
What now do you see is the biggest challenges it
faces this time round, given the variety of concerns about
the global airline industry right now.
Speaker 3 (09:34):
Yeah, I didn't have a tough time, didn't it. I mean,
I think that's putting it mildly. The stock hardly ever
traded relatively and I don't think it rarely traded above
the offer price as well as a publicly listed airline.
So I think that the big challenges it faces right
now is managing this environment and showing it can sustain
(09:58):
profits through we frankly, are pretty pretty.
Speaker 2 (10:01):
Good conditions at the moment.
Speaker 3 (10:04):
There's a shortage of capacity worldwide, so people airlines cannot
get enough aircraft manufacturers help pump them map fast enough.
That allows airlines including Version Australia to charge a premium
for seats and to fill the aircraft eighty five percent
full as they are at the moment. That's that's a
pretty good what they call load factor, you know. That's
(10:26):
any airline would settle for that anytime, any time of
the year. The question is can it do that when
things are not in its favor. Can it Can it
sustain that position when perhaps aircraft come back into the
market in a few years time. Can it continue to
charge the right prices when there's a bit more competition
(10:50):
in the market for instance, And let's not forget the
Vision has capitalized on the lack of competition here. We've
seen the collapse of BONDSA and Rex as well, and
that has so to boost Vergin just at the right time,
really before their IPO. So that has to some degree
not inflated profits, but certainly boosted them. Question is can
they do that when there's a bit more competition and
(11:11):
things are so much in their favor.
Speaker 1 (11:14):
And when we come back, well unpack what the listing
means for both investors in Virgin Australia and US. It's passengers.
I'm Rebecca Jones and you're listening to the Bloomberg Australia Podcast.
Speaker 3 (11:30):
We're generating strong returns. We're able to fund our fleet
growth without needing new equity.
Speaker 2 (11:37):
It's different in almost every way as far as the
business model goes. So we're very now focused on serving
the domestic Australia market.
Speaker 1 (11:48):
And welcome back to the Bloomberg Australia Podcast. You're here
with me Rebecca Jones, and I'm talking to Ancus Whitley,
a reporter for Bloomberg News who covers the aviation industry.
As we just heard there from Emerson talking on Tuesday
about Virgin's improved balance sheet and it's focused on domestic roots.
How is Virgin positioning itself to take market share off
(12:12):
its sworn rival? Should Quantus be worried? Well?
Speaker 3 (12:16):
Do you know what, Bizarrely, it's not really trying to
take market share off Quantus. There's been this long sort
of cease far, if you like, between Virgin and Quantus,
where they would just allow allow each other to have,
you know, a third of the market in Virgin's case
and two thirds in the market in Quantus' case, and
that that was very good. Broadly leave each other alone
(12:38):
and just you know, carve up in the market in
those kind of proportions. So I asked Dave Emerson when
I spoke to him on Monday, said, you know, you've
always been satisfied with the third and its predecessor said
she was going to draw the line at the third
as well. And he says, we don't need to take
more market share. We just need to take more profit.
(12:59):
So when you think of the market share, Quantus packs
way more of a punch when it comes to profit.
Quantus's profit is, you know, has been in the nineties
ninety percent of what you call the profit pool in Australia,
and Virgin's profit share is in the twenties. Emerson told me,
So what he would like is to get that profit
(13:21):
share to the same level as the market share, so
about the third the third of the market share, third
of the profit share, and that means competing where they've
got pricing power. And so this time around we've seen
Virgin really let Quantus have the bottom of the market
jet store. You can have the low cost fares. We're
(13:42):
not going to be able to compete with you on
that segment, and it's pretty much given Quantitas to top
of the market as well. The premium corporate customer, you
can have that as well. We're not going to be
able to compete in that segment either. But what Virgin
thinks it can do is plowed through the middle grand
So it's looking for the the small business customer, the
premium leisure, the value oriented in Emerson's words, corporate customer,
(14:07):
that actually, to those companies, every dollar does matter. It's
not just the big corporates. You have an account with Quantus,
no one will fly with Virgin because we're a bit
more value conscious and so in that respect, Virgin's challenge
is really about maximizing the profit in the segments where
it's competing.
Speaker 1 (14:27):
So let's look at this now from a shareholder view,
with those two airlines competing in this duopoly space, what
does Virgin have to offer shareholders this time around compared
to what Quantus has got at the moment.
Speaker 3 (14:44):
I don't think it's terribly complicated. I mean, what all
investors want from a stock, they want sustainable, repetitive profits,
but a growth dividend. But I think in Virgin case,
I think the shares probably have to be a bit
cheaper in relative terms and Quantus otherwise, if you're an
(15:06):
investor in Australian aviation, why don't you just buy quantas
it's the biggest carrier in the world, It's more diversified,
it's got pricing power, it's got different brands, it's minting
money at the moment. So I think, you know, it's
all about price. I know it's a cliche, but it
is about price that the If you're delivering sustainable profits
(15:30):
that are getting bigger and delivering what you say you're
going to do, then I think Virgin shareholders will be
satisfied with that.
Speaker 1 (15:40):
Finally, how much does the loyalty business of both carriers
come into this equation. Obviously that's something that we've seen
Vanessa Hudson once she's taken the rounds from Alan Joyce
really rethink that that strategy completely. Should we be expecting
any changes under Amson at Virgin now that they've listed.
Speaker 3 (16:03):
It's worth I think pointing out just how important loyalty
of businesses.
Speaker 2 (16:07):
Are to airlines. They are really the glue that hold
the business together.
Speaker 3 (16:14):
They're very often the most profitable part of the business,
even though they don't have any passengers, no aircraft.
Speaker 2 (16:20):
They're fast growing.
Speaker 3 (16:22):
Sometimes they have a value that's not far off the
value of the airline itself. If you look at some
of the analysis of the best loyalty businesses in the planet,
and I'd have to say Quantus probably has one of them.
So this is really hard for Virgin competing with Quantus Loyalty.
It's an absolute behemoth in the Australian market. Quantus loyalty
(16:47):
is when I say, the glue that holds the airline together.
Quantus loyalty is strong enough to really keep people flying
with Quantus no matter what it does to them, because
if you're collecting Quantus points, you will forgive service, which
any airline does deliver at some point. So if you
had a bad experience with Quantus, you'll probably keep flying
with them because you're collecting the points. So Virgin's challenge
(17:11):
is really to get to that state where its passengers
are collecting uniquely Velocity points. And that's Virgin's frequent Flower
program and Velocity and that's a tall order. And just
to give you a few numbers, if you look at
the revenue of Quantus, Frequent Flower and Velocity, it's about
(17:33):
three billion Aussie dollars together. That sounds pretty good right
in a year, until you break out Virgin's share not
much more than four hundred million. And then when you
look at the number of members, Velosti has thirteen million,
Quantus has seventeen million. So if you look at that
disparity between the revenue share and the members, it's really huge.
(17:55):
Fair to conclude that Velocity is not packing a punch
per user, right, So it's challenge is really to get
those thirteen million members more engaged, more uniquely chasing velosoty points.
And that's a tall order because really Quantus has that
market wrapped up.
Speaker 1 (18:12):
By Thinking in Australia, Angus Whitley, thank you for joining me.
Speaker 2 (18:18):
Thanks big.
Speaker 1 (18:20):
If you found today's conversation insightful, be sure to follow
the Bloomberg Australia Podcast wherever you listen, and check for
more reading on Virgin Quantus and the business of travel,
including the latest reporting from Angus Whitley on Bloomberg dot Com.
This episode was recorded on the traditional lands of the
war Wondery and Gadigal people. It was produced by Paul
(18:40):
Allen and edited by Chris Burke and Ainslie Chandler. I'm
Rebecca Jones and I'll see you next week.
Virgin Australia is feeling the impact of COVID nineteen.
Speaker 2 (00:04):
There's no doubt about that.
Speaker 1 (00:06):
Virgin Australia has just gone into voluntary administration.
Speaker 3 (00:10):
Bain Capital has bought Virgin Australia.
Speaker 1 (00:13):
After twenty four years of flying, Virgin is floating. Virgin
Australia's relaunch on the Australian Stock Exchange has been a
long time coming. Virgin's had quite the ride over the
past five years. It was the first airline to go
under during COVID, got snapped up by an American a
private equity giant, landed an investment from Katar Airways, and
(00:37):
this week made its comeback on the AX as Middle
East turmoil whip sword markets. So what is next for
Australia's second biggest airline. Hello, I'm Rebecca Jones and welcome
to the Bloomberg Australia Podcast. Today we dive into the
Virgin Australia IPO, the biggest listing on the ASEX so
(00:58):
far this year. Well, it is technically a relisting if
we're being precise to examine what it's return means for investors,
consumers and the airline industry. I'm joined by Angus Whitley,
global business reporter for Bloomberg News who writes about aviation
and has spoken this week to the company's new CEO.
Angus joins me today from Sydney. Angus, I'm going to
(01:20):
try and lay off the flying puns and I will
commit to that, but just let me let me sneak
in one more. The last five years have been pretty
turbulent for Virgin Australia. Can you give us a potted
history of what's happened since the dark days of twenty twenty.
Speaker 3 (01:37):
The dark days of twenty twenty really were when the
start of the pandemic, weren't they. I mean, Virgin Australia
did not last long when the pandemic granded global aviation.
Speaker 2 (01:49):
It was saddled with debt.
Speaker 3 (01:51):
And once it couldn't fly anywhere, it really could serves
the debt, so it was paralyzed. So Virgin went under.
Attempts to see government help failed. And you remember, according
to CEO Alan Joyce at the time lobbied against that.
So it was cutthroat. It was cut throat stuff.
Speaker 2 (02:08):
There were layoffs.
Speaker 3 (02:09):
Since then, Virgin Australia has gone through three different CEOs.
They've undertook years of planning for the IPO through their
majority year in a Bane Capital.
Speaker 2 (02:19):
At the time, there was at.
Speaker 3 (02:21):
Least one false start, one failed attempt to list when
the listing window closed, and now we're here, so that
now they're stringing together consecutive profits.
Speaker 2 (02:31):
They recorded the first profit in eleven.
Speaker 3 (02:33):
Years, would you believe, in twenty twenty three, So this
was not a company that made money on any regular
basis before and now they're set to record three annual
profits in a row. So they've really they've come a
long way since those, as you say, dark days of
twenty twenty and he's a pretty different airline.
Speaker 1 (02:51):
Of course. Shares have just started trading on the Australian
Stock Exchange on Tuesday afternoon, angus, how did they go
on day one? And what does that tell us?
Speaker 3 (03:00):
Yeah, Bain Capital, which still owns about forty percent of
Virgin Australia's sold a thirty percent steak in this IPO
at two dollars ninety share and the stock closed at
three dollars twenty three, so that was eleven percent pop
on the first day, which you know, that's that's pretty good.
That tells us that Bain left something on the table,
(03:22):
as they say, for the new investors. But also I
think it's a remarkable result really when you think of
how they managed to thread this needle and get the
IPO away given all the developments, the fluidity, the fast
moving developments in the Middle East, that was really you know,
affecting global sentiment. Doesn't matter whether you're an Australian line
(03:45):
or an Australian company. The IPO was hours after Iran's
retaliatory strikes in Qatar and hours just hours after the
sea spar trumps and sea spar between Israel and around
So if they started treating a few hours earlier, Gin
be in a different story. But things really did fall
for them. That's why they got an eleven percent pop.
Speaker 1 (04:07):
And we're recording this on Wednesday, and of course things
are still quite volatile and could be we could be
in a different situation right when this episode comes out
on Thursday. I am interested acusing the word on the street.
Is it supporting this narrative? Bin being the smartest kids
on the block here, right, Are the analyst telling you
(04:29):
that the IPO valuation is about right or do they
think it's overvalued?
Speaker 2 (04:36):
Yeah? Good point.
Speaker 3 (04:37):
I mean you're buying an asset of a private equity company,
you know there's lots of pitfalls there that they know
the asset better than anyone, and if you're a new
investor coming, you don't know anything about the asset really,
all you know is a prospectives. It's a bit like
buying a secondhand car. You might have the service record,
you'll have the price, and you'll know in the owner.
(04:58):
You have a perspectus in the sense of an IPO,
but you don't really know too much about the inner
workings of the company. So that's what puts people off
buying assets from private equity because you know they've stripped
tat costs, which Bain has in the case of Virgin Australia,
and it's a good time for them to sell. Does
that make it a good time to buy, You know,
(05:19):
that's questionable. However, the Australian analyst community is largely full
of bulls. If you look at the analyst ratings for Quantas,
for example, there's only one seller and that's morning Star,
and that's partly because it's a duopoly. Quantus and Virgin
largely share the entire market. Maybe you can't make money
(05:40):
in a diopoly, you know you're doing something wrong.
Speaker 2 (05:43):
So was the IPO valued.
Speaker 3 (05:45):
I think the trade on the first details of something
the spoils were probably evenly spread between Bain and the
new investors. I mean Bain raised more than six hundred
million Australian dollars. The investors made a more than ten
percent returning in the day. It's too early to say
what the market thinks of Virgin Australia stock. Now we've
(06:07):
only got one analyst rating on the terminal that's from CLSA.
They haven't accumulate rating, but the stock is already above
clsa's timet price.
Speaker 2 (06:17):
So time will tell. But it's very early days.
Speaker 3 (06:22):
But from the first day's performance, I think both being
and the new investors would pretty happy.
Speaker 1 (06:28):
I want to talk about oil prices because oil prices
and the aviation industry they're extricably linked. We've seen those
prices tumble this week as tensions have appeared to ease
in the Middle East. But as I said before, it's
still a very volatile situation over there, and these sorts
of crisis can hit the global demand for travel. Not
(06:51):
to mention Virgin significant ties to the golf regent via
it's cut our airways stake and long haul flights to
Doha etc. What did the new CEO, Newish CEO, Dave
Emerson and Virgin Australia have to tell you about that
when you spoke to him.
Speaker 3 (07:07):
Dave Emerson is the is the new CEO, and actually
this was his first outing with media on Monday. He'd
been really working pretty hard on the IPO. I think
hadn't met the media. I spoke to him on Monday
night and the eve of the IPO when Middle East
tensions were really at a peak and aatly It's one
(07:27):
of my first questions, how do you feel about listing
in this kind of environment. So it is true that
Virgin in Australia has deep ties to the region. I
mean Katar airway zones twenty five percent of the airline.
Vergin Australia runs its long whole routes into Doha used
(07:48):
in Katar Airways aircraft and that's how it advertises itself
as a kind of Australian airline that offers long haul connections.
But at the same time it's it's low risk, low
return strategy because Virgin Australia is not running its own aircraft.
It's not getting huge returns. Really, that connection with Katar
(08:10):
really serves to feed customers on to Virgin's domestic network
and that's where Virgin likes to make money. It's where
it does make money. And why wouldn't You're part of
a geopoli much better for Virgin to compete in the
domestic market than it is in the international market. So
that's one aspect of that Middle East ties. Now, Emerson said,
(08:33):
of course, if this lasts more than six months, then
then it starts to have an impact on all airlines.
You know, all prices might rise, that would hurt all airlines.
It's usually the first or second biggest cost for any airline.
But for the moment, Virgin Australia is actually pretty well
hedged for fuel costs for the next six months. So
(08:54):
he was pretty pragmatic about listing in this environment. His
words were that aviation, and of course it is aviation
always goes through these geopolitical ruptures, doesn't it, And it
always seems to come out the other side somehow because
people still want to fly ankers.
Speaker 1 (09:13):
You've covered Australia's airline industry for more than a decade
and we know that last time Virgin was listed on
the asxxit it had a bit of a tough time.
What now do you see is the biggest challenges it
faces this time round, given the variety of concerns about
the global airline industry right now.
Speaker 3 (09:34):
Yeah, I didn't have a tough time, didn't it. I mean,
I think that's putting it mildly. The stock hardly ever
traded relatively and I don't think it rarely traded above
the offer price as well as a publicly listed airline.
So I think that the big challenges it faces right
now is managing this environment and showing it can sustain
(09:58):
profits through we frankly, are pretty pretty.
Speaker 2 (10:01):
Good conditions at the moment.
Speaker 3 (10:04):
There's a shortage of capacity worldwide, so people airlines cannot
get enough aircraft manufacturers help pump them map fast enough.
That allows airlines including Version Australia to charge a premium
for seats and to fill the aircraft eighty five percent
full as they are at the moment. That's that's a
pretty good what they call load factor, you know. That's
(10:26):
any airline would settle for that anytime, any time of
the year. The question is can it do that when
things are not in its favor. Can it Can it
sustain that position when perhaps aircraft come back into the
market in a few years time. Can it continue to
charge the right prices when there's a bit more competition
(10:50):
in the market for instance, And let's not forget the
Vision has capitalized on the lack of competition here. We've
seen the collapse of BONDSA and Rex as well, and
that has so to boost Vergin just at the right time,
really before their IPO. So that has to some degree
not inflated profits, but certainly boosted them. Question is can
they do that when there's a bit more competition and
(11:11):
things are so much in their favor.
Speaker 1 (11:14):
And when we come back, well unpack what the listing
means for both investors in Virgin Australia and US. It's passengers.
I'm Rebecca Jones and you're listening to the Bloomberg Australia Podcast.
Speaker 3 (11:30):
We're generating strong returns. We're able to fund our fleet
growth without needing new equity.
Speaker 2 (11:37):
It's different in almost every way as far as the
business model goes. So we're very now focused on serving
the domestic Australia market.
Speaker 1 (11:48):
And welcome back to the Bloomberg Australia Podcast. You're here
with me Rebecca Jones, and I'm talking to Ancus Whitley,
a reporter for Bloomberg News who covers the aviation industry.
As we just heard there from Emerson talking on Tuesday
about Virgin's improved balance sheet and it's focused on domestic roots.
How is Virgin positioning itself to take market share off
(12:12):
its sworn rival? Should Quantus be worried? Well?
Speaker 3 (12:16):
Do you know what, Bizarrely, it's not really trying to
take market share off Quantus. There's been this long sort
of cease far, if you like, between Virgin and Quantus,
where they would just allow allow each other to have,
you know, a third of the market in Virgin's case
and two thirds in the market in Quantus' case, and
that that was very good. Broadly leave each other alone
(12:38):
and just you know, carve up in the market in
those kind of proportions. So I asked Dave Emerson when
I spoke to him on Monday, said, you know, you've
always been satisfied with the third and its predecessor said
she was going to draw the line at the third
as well. And he says, we don't need to take
more market share. We just need to take more profit.
(12:59):
So when you think of the market share, Quantus packs
way more of a punch when it comes to profit.
Quantus's profit is, you know, has been in the nineties
ninety percent of what you call the profit pool in Australia,
and Virgin's profit share is in the twenties. Emerson told me,
So what he would like is to get that profit
(13:21):
share to the same level as the market share, so
about the third the third of the market share, third
of the profit share, and that means competing where they've
got pricing power. And so this time around we've seen
Virgin really let Quantus have the bottom of the market
jet store. You can have the low cost fares. We're
(13:42):
not going to be able to compete with you on
that segment, and it's pretty much given Quantitas to top
of the market as well. The premium corporate customer, you
can have that as well. We're not going to be
able to compete in that segment either. But what Virgin
thinks it can do is plowed through the middle grand
So it's looking for the the small business customer, the
premium leisure, the value oriented in Emerson's words, corporate customer,
(14:07):
that actually, to those companies, every dollar does matter. It's
not just the big corporates. You have an account with Quantus,
no one will fly with Virgin because we're a bit
more value conscious and so in that respect, Virgin's challenge
is really about maximizing the profit in the segments where
it's competing.
Speaker 1 (14:27):
So let's look at this now from a shareholder view,
with those two airlines competing in this duopoly space, what
does Virgin have to offer shareholders this time around compared
to what Quantus has got at the moment.
Speaker 3 (14:44):
I don't think it's terribly complicated. I mean, what all
investors want from a stock, they want sustainable, repetitive profits,
but a growth dividend. But I think in Virgin case,
I think the shares probably have to be a bit
cheaper in relative terms and Quantus otherwise, if you're an
(15:06):
investor in Australian aviation, why don't you just buy quantas
it's the biggest carrier in the world, It's more diversified,
it's got pricing power, it's got different brands, it's minting
money at the moment. So I think, you know, it's
all about price. I know it's a cliche, but it
is about price that the If you're delivering sustainable profits
(15:30):
that are getting bigger and delivering what you say you're
going to do, then I think Virgin shareholders will be
satisfied with that.
Speaker 1 (15:40):
Finally, how much does the loyalty business of both carriers
come into this equation. Obviously that's something that we've seen
Vanessa Hudson once she's taken the rounds from Alan Joyce
really rethink that that strategy completely. Should we be expecting
any changes under Amson at Virgin now that they've listed.
Speaker 3 (16:03):
It's worth I think pointing out just how important loyalty
of businesses.
Speaker 2 (16:07):
Are to airlines. They are really the glue that hold
the business together.
Speaker 3 (16:14):
They're very often the most profitable part of the business,
even though they don't have any passengers, no aircraft.
Speaker 2 (16:20):
They're fast growing.
Speaker 3 (16:22):
Sometimes they have a value that's not far off the
value of the airline itself. If you look at some
of the analysis of the best loyalty businesses in the planet,
and I'd have to say Quantus probably has one of them.
So this is really hard for Virgin competing with Quantus Loyalty.
It's an absolute behemoth in the Australian market. Quantus loyalty
(16:47):
is when I say, the glue that holds the airline together.
Quantus loyalty is strong enough to really keep people flying
with Quantus no matter what it does to them, because
if you're collecting Quantus points, you will forgive service, which
any airline does deliver at some point. So if you
had a bad experience with Quantus, you'll probably keep flying
with them because you're collecting the points. So Virgin's challenge
(17:11):
is really to get to that state where its passengers
are collecting uniquely Velocity points. And that's Virgin's frequent Flower
program and Velocity and that's a tall order. And just
to give you a few numbers, if you look at
the revenue of Quantus, Frequent Flower and Velocity, it's about
(17:33):
three billion Aussie dollars together. That sounds pretty good right
in a year, until you break out Virgin's share not
much more than four hundred million. And then when you
look at the number of members, Velosti has thirteen million,
Quantus has seventeen million. So if you look at that
disparity between the revenue share and the members, it's really huge.
(17:55):
Fair to conclude that Velocity is not packing a punch
per user, right, So it's challenge is really to get
those thirteen million members more engaged, more uniquely chasing velosoty points.
And that's a tall order because really Quantus has that
market wrapped up.
Speaker 1 (18:12):
By Thinking in Australia, Angus Whitley, thank you for joining me.
Speaker 2 (18:18):
Thanks big.
Speaker 1 (18:20):
If you found today's conversation insightful, be sure to follow
the Bloomberg Australia Podcast wherever you listen, and check for
more reading on Virgin Quantus and the business of travel,
including the latest reporting from Angus Whitley on Bloomberg dot Com.
This episode was recorded on the traditional lands of the
war Wondery and Gadigal people. It was produced by Paul
(18:40):
Allen and edited by Chris Burke and Ainslie Chandler. I'm
Rebecca Jones and I'll see you next week.
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