June 25, 2025 • 25 mins
This week on The Fin podcast: senior reporter Ayesha de Kretser and Chanticleer columnist Anthony Macdonald on Virgin’s return to the market, why it will struggle to stay in its lane and whether Australia can ever sustain more than two airlines.
This podcast is sponsored by Aussie Broadband
Further reading:
Virgin prepares for IPO take-off in a test for Bain – and the market
Five years after collapsing into administration, the country’s second-largest airline will finally return to the ASX on Tuesday. There is a lot at stake.
IPO market cracks open as Virgin, Greatland shares soar on debut
Fund managers rushed into the airline’s stock in a major win for Bain Capital, which has worked on turning around the business for five years.
Virgin’s future is now in the hands of the markets gods
The problem with listing ceremonies is they look backwards, but investors look forward. The airline did what it must to relist, but now it’s over to the ASX.
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:04):
The Australian Financial It was always going to be an
eventful day for Virgin Airlines as it returned to the
stock market on Tuesday, but no one predicted it will
be this dramatic. Israel's Defense minister has acknowledged that they
have carried out strikes against Iran, the first time in
month of Iran.
Speaker 2 (00:22):
Fired two waves of missiles overnight towards Israel.
Speaker 3 (00:26):
The United States as dramatically entered Israel's war against Iran.
Speaker 2 (00:30):
News of the temporary closure of Katari airspace threatened to
overshadow Virgin's float. In the days leading up to its listing,
Israel and Iran traded missiles and the US entered the fray.
The prospect of a broader conflict and a spike in
fuel prices was not good news for the airline industry.
(00:53):
But then suddenly, on Tuesday, the conflict deescalated and there
was talk of a ceasefire. Time for a relieved Virgin
CEO Dave Emerson to ring the bell.
Speaker 4 (01:08):
Investors are buying Virgin shares today as the airline goes
public in one of the most hotly anticipated floats.
Speaker 2 (01:16):
In a strong result, Virgin's shares jumped eleven percent on
the first day of trading. But now the airline must
stay on track and ensure history doesn't repeat.
Speaker 4 (01:26):
There's just something about airlines, There's something about aviation executives
is so tempting for these guys to expand and try
and compete with the likes of Quantas.
Speaker 2 (01:36):
Welcome to the Finn. I'm Lisa Murray. This week, senior
reporter Aisha decrets Her and chanticlear columnist Anthony McDonald on
Virgin's way back to the market, why it could struggle
to stay in its lane, and whether Australia can ever
sustain more than two airlines. It's Thursday, June twenty six.
(02:15):
Hi Aisha, Hi, and thanks for coming on the podcast.
Speaker 4 (02:18):
Thanks for having us, Lisa.
Speaker 3 (02:19):
Thanks Lisa.
Speaker 2 (02:20):
And when a company lists on the AOSX, it's usually
an exciting day, but Virgin's IPO was particularly dramatic on Tuesday.
Its executives were up in the early hours of the
morning dealing with the diversion of flights following Iran's decision
to launch missiles at a US base in Qatar, But
the day ended well. How would you rate Virgin's return to.
Speaker 4 (02:43):
The market, Lisa, This was in the hands of the gods,
and the gods.
Speaker 5 (02:46):
Smiled, so so much could have gone wrong, Like Virgin
did well to raise at six hundred and eighty five
million dollars for its IPO, but that was three weeks ago, Lisa,
like so much has happened in the past three weeks,
so much that could have really impacted investor's sentiment.
Speaker 4 (02:59):
And how would trade on listing. You know, you had
Israel and Iran and the US bombing Iran, the oil
price spike every the weekend, the threat of retaliation strikes
like at worst could have sunk the float. Lisa, like
Bayan might have had to have pulled this float. I mean,
at best, you would have thought it would scare off
some investors and the stock would trade down, But almost miraculously,
the whole thing calmed down Monday night in the US
(03:22):
right ahead of the listing on Tuesday morning austral In time,
Trump was even talking about a ceasefire in the Middle East,
which is something that we certainly didn't see coming. And
by midday when it was time to list, the market's
mood was risk on. Investors were keen to by stocks,
and Virgin landed in smooth markets. It opened up seven
and a half percent and held those gains for most
of its first day. Now normal times, Lisa, you'd say
(03:43):
that's a solid debut. It's nothing miraculous, But given what
the market conditions were like, given what's been happening in
the Middle East, you'd say it's a remarkable daboot.
Speaker 2 (03:56):
And before we get to what happens next, take us
back to mid two thousand when the airline launched as
Virgin Blue in a marketing blitz led by Richard Branson.
How did Virgin secure its place in the Australian aviation market.
Speaker 4 (04:12):
They launched with a mystery flight to Marichid of all places.
At the time, it was called Virgin Blue because its
first planes were red and blue is the Australians saying
for redhead now at least. It started services in August
two thousand, in the lead up to the Sydney Olympics.
(04:32):
Set up by Branson and Brett Godfrey, based in Brisbane
as a low cost carrier. At first it had only
two planes, but then in September two thousand and one.
Speaker 2 (04:40):
When the last flight touched down in Sydney this morning,
Ansets passed into aviation history.
Speaker 4 (04:46):
Antet Australia, which was the number two airline in Australia.
It collapsed and Virgin all of a sudden became the
second biggest airline now. It's I'm say Virgin contributed to
the collapse of Inset because it had turned down and
off from Singapore Airlines an Anset to buy Virgin and
(05:06):
Branson he actually called a press conference pretending he'd accepted
the deal.
Speaker 5 (05:10):
Anyway, I'm off to England with my court pavillion dollar
check and thank you very much.
Speaker 4 (05:16):
Before announcing he was only joking and ripped up the check.
I'm just joking. It's pitch was there was younger, funer
and less expensive than quantious. It did widespread marketing or.
Speaker 3 (05:30):
Richard Branson will launch an assault on the Australian domestic
travel market this morning, rebranding Virgin Blue as Virgin Australia.
Speaker 4 (05:38):
The big sort of change came in twenty eleven when
it rebranded as Virgin Australia. What we're building here is
an airline that he still has very competitive airfares, but
he's also very competitive at the front end of the aircraft.
To try and move the company on from its low
cost Virgin Blue roots. It became a more full service
airline and started targeting business flight.
Speaker 3 (06:00):
Virgin Australia has a new strategy and its rivalry with Quantus.
Speaker 2 (06:04):
It's unveiled a luxury aircraft for use on domestic roots Now.
Speaker 4 (06:09):
Twenty fourteen, Virgin bought Tiger Airways, an airline you might
remember now. It was sort of copying Quantus, which had
launched Jetstar as a low cost carrier to try and
keep Virgin Blue out of the market. And Virgin at
the time was run by a guy called John Borghetti.
There is an alternative now and it is for the
first time in over a decade, in fact, sinceanst stopped
(06:30):
playing Did you have a two carriers now that can
serve us all elements of the market. It was trying
to take on Quantas that was spending lots of money
on lounge's furniture, business class flights, all this costly sort
of premium stuff. And that's because there was a bit
of rivalry between Borghetti and Alan Joyce, who was running Quantus.
Speaker 2 (06:49):
Virgin chief executive John Borghetti took over Virgin after being
post over for the top job at Quantus three years ago.
Speaker 4 (06:55):
They both worked at quantas Joyce had won the CEO
spot and Borghetti went Virgin, and he decided to take
them on.
Speaker 3 (07:03):
John Borghetti, how satisfying is it to get this job
given you missed out on the CEO role at Quantus.
Speaker 4 (07:11):
I think this job is an incredible opportunity and one
that I'm looking forward to very much, irrespective of any
other job. As part of it, Virgin built a frequent
fly business called Velocity. At one stage it even sold
a stake and it's private equity, and then brought that
stake back using a lot of debt, closed borders and
grounded planes. The coronavirus pandemic has the airline industry facing
(07:33):
the worst crisis in its history. So by that time
the pandemic struck in early twenty twenty, Virgin all of
a sudden had lots of debt as planes were in
the sky, and the whole thing went into administration.
Speaker 2 (07:51):
I share all airlines were grounded by COVID. Why was
Virgin affected more than other airlines and how did it
manage to turn the business around?
Speaker 3 (08:01):
So I think his aunt mentioned had just had too
much debt. More than five billion dollars had been racked up,
and I think the recriminations can fly over who acquired
all of that debt and on what and whether it
was useful. Some people would say that chasing quantas and
trying to be premium was a good strategy. Others would
say buying the stake in Velocity back at the wrong
time meant that Virgin tipped into administration. So people can
(08:23):
kind of argue over what was the straw that broke
the Campbell's back. But I think what we can say
is that the foreign shareholders that sat on Virgin's register,
which were Singapore Airlines, Eddie had China's nan Chan Group,
all owned about twenty percent each, and they sort of
weren't the most useful of shareholders because all state owned,
they didn't have necessarily shareholder profits at the heart of
(08:46):
what they did, and they all had a different strategic
plan for Virgin. The airline had to temporarily stand down
about eight thousand of its workers while borders were shut
during that pandemic. Virgin Ground did eight thousand people now
out of work.
Speaker 4 (09:03):
It is what it is done, it is what it is.
We're all in this together. There's nothing we could do.
Speaker 3 (09:08):
Paul S Garret, the CEO who did buy back that
stake in Velocity. He'd asked the government, Morrison government for
a one point four billion dollar loan.
Speaker 4 (09:17):
There was an enormous man of estort Peter to try
and get the support from the federal government. And look,
it was their decision and we respect that decision because
of the effort we put in. It felt a little
bit disappointing, but there.
Speaker 3 (09:29):
Was a bit of lobbying behind the scenes by a
number of players, including Quantis and ultimately Scott Morrison and
Josh Fredenberg, who was the Treasurer at the time. They
went for a market based solution that was proposed by
Nicholas More, the former CEO of Macquarie, who said that
actually allowing the airline to tip into administration was a
better kind of option and letting the market find a
(09:51):
solution so very much. The imperative from Moore and others
at the time was to make sure that whatever happened
coming out of the pandemic, there was still a strong
competitor Aquantas. So what happened was Deloitte was appointed as
the administrator.
Speaker 4 (10:06):
Virgin's the biggest casualty so far as COVID nineteen ricks
havoc on Australia's locked down economy.
Speaker 3 (10:13):
There was a sale process run and in the end
it was US private equity firm Bank Capital that won
to rescue Virgin out of administration. Private equity fund Bain
Capital looks set to become the new owner of Virgin
Australia after New York hedge fund Cyrus Capital Partners withdrew
(10:33):
its offer. They sacked three thousand staff and they really
bought an airline that had halved the number of aircraft
and renegotiated hundreds of contracts to reset its cost base.
Speaker 2 (10:49):
And former CEO Jane Hrdlicka came on board once Bain
took over. How much credit can she take for the
turnaround and why didn't she take the airline all the
way to the IPO.
Speaker 4 (11:02):
Jane used to work for Baane and Company. That's the
management consulting arm that's the sister company to Baane Private Equity,
and there's a lot of crossover between the two. They
know her, she knows them. She was involved in this
from the start before Virgin collapsed. When Bain Private Equity
opened its file, they pretty quickly got her on. She
used to work for Jetstar. She knows airlines she knows
(11:23):
Bain and she was available. She's quite dogged, she's well
known in the market, she's got a particular style, and
they thought this is someone who can really be involved
in the turnaround with us. It was a bit controversial
at the time because Jane can be a divisive character,
but she can also be quite effective at what she does. Virgin,
as I just said, was run by a blake called
Paul Scurra. It was sort of widely anticipated that he
(11:45):
would continue to run Virgin under Baine's ownership, but pretty
much as soon as Baine got the keys, they threw
them over to Jane and said do your best. Yeah.
Speaker 3 (11:54):
There was always this tension though, I think, and between
Scurr's plan for the airline, which was to ke keep
it internationally focused, to keep it as a competitor Aquantus
on more levels, and what Bain and Herloko wanted to do,
which was keep this a very low cost, more domestically
focused the airline that wasn't flying long haul international anymore.
Speaker 4 (12:15):
So Bain's turn around under Jane it was a bit
of good management. It's some good luck. I mean, they
used the administration framework and the laws around it to
completely reset the airline, get rid of aircraft's, renegotiate contracts,
refine the customer proposition, change the routes it flies like.
In meetings with investors in April, it told them it
had changed five hundred contracts since it first went into administration,
(12:40):
which is a huge number, Lisa, and it saved a
lot of money. So Bain then has the airline after
the pandemic. I mean the sector was always going to
bounce back. It took a while. Remember that the lockdowns
lasted through twenty twenty, twenty twenty one. They were on
and off. But then this revenge travel boomed. People were
sitting on savings. The flood gates really opened. Aline capacity
was lower, and so if you did have a plane
(13:02):
with seats on it, prices were up and you were
laughing right at the same time, Lisa. Quantas, which is
undisputably Australia's biggest airline, number one, it's got two thirds
of the domestic market, it shot itself in the foot.
Speaker 5 (13:16):
You know.
Speaker 4 (13:16):
It's customers were raging against flight cancelations, COVID credits, lots, baggage,
all this basic customer service stuff that Quantus either forgot,
how to do during the pandemic, or just wasn't set
up to do anymore. It's brand plummeted in the rankings,
while Virgins, which looked a bit more sensible and had
its act together, perhaps was easier because it was smaller,
(13:36):
It's rose up as a result. Now, through it all,
Virgin created a new lane for itself and it stayed
in it. Jane's an absolute force. She did a good
job in firing up the Virgin's staff, getting deals done
with unions, even locking in guitar airways as big shareholders.
But the problem is Lisa that investors were a bit
wary of her. She wasn't the one to take it
(13:58):
to the IPO. She did a lot of the heavy lifting,
a lot of the prep work, got this turnaround on
track and sort of helped design it. But she wasn't
the one ringing in the bell at the ASEX on Tuesday.
And you have to ask why, And it's just because
the investors did push back against her. Bain realized that,
so they replaced Jane with another Bayin and Company former
(14:19):
consultant called Dave Emerson. I mean, he has also been
involved in the turnaround for a few years now. And
the message that he's been selling to investors is that
Virgin has found its lane. It's a third of the
domestic aviation market. You've got Conscious above it, you've got
jet Star below it. Virgin's just in the middle, making
pretty good, middling sort of margins from everyday business customers
(14:42):
and holiday makers. At least, it's a nice little lane
to swim in. Now. The problem is Virgin's been in
a nice little lane before. Remember it was the budget
carry out I was doing reasonably well. There's just something
about airlines. There's something about aviation executives that avgas can
go to their heads and it's just so tempting them
to go up market, to have business class flash lounges,
(15:03):
so tempting for these guys to expand and try and
compete with the likes of Quantus. So you have to
wonder whether Virgin will be able to stay in its
lane long term. I share.
Speaker 2 (15:35):
We're talking about Virgin Airlines, which floated on the Stock
Exchange on Tuesday after managing an impressive comeback from its
collapse during the pandemic. What's the outlook for Virgin? Will
it stay in its lane or do you think like
Ant says it might try and take on Quantus and
at some point upset the state of play in the
(15:56):
aviation market.
Speaker 3 (15:58):
I think it's very that Virgin has told investors that
it knows its place. It wants to be the great
second airline in Australia and it's very comfortable doing that.
It's a very very profitable place to.
Speaker 2 (16:11):
Be right now.
Speaker 3 (16:12):
So the outlook right now is helped by very very
solid domestic aviation industry. Australia is unique in having only
two airlines at the moment. You know, the Regional Express
that tried to take on Virgin and Quantus on capital
city routes and ended up in its own administration process.
We also saw discount airline Bonser that came and tried
(16:33):
also failed within a year. So I think when it
comes to staying in your lane, the thing that always happens,
and you know, we can say that it's a market
for two airlines until we're blue in the face. There
will always be a third competitor that comes and goes.
You know, whether they last for more than twelve months
is another story, but someone will try and I think
(16:53):
at that point that's when airlines need to decide what
is going to be your proposition, and I think that
one of the things Virgin has emphasized as a point
of growth as it goes to investors with a growth
story is that the Velocity frequent flyer program will grow. Now,
growing your frequent flyer program when you don't have a
(17:14):
long and big international network like Quantus is quite challenging.
Do people want to be part of a frequent flyer
network where you can redeem on flights from Melbourne to
Sydney or to the Gold Coast versus going to London
or flying business class life flat to New York. Probably not.
It's a less attractive proposition, So there will always be
(17:36):
the temptation to get back into long haul. The problem
is scale, So getting new planes to be able to
fly enough to make your network a genuine competitor to
Quantus is going to take a long time. You know,
right now we're seeing uncertain fuel prices with what's happening
in the Middle East. There are a lot of unknowns
in the market, and that's always the case with aviation.
(17:59):
But I think we can be sure of you kind
of two things. One that a third competitor will spring up,
and two, as ant says that at some point they'll
get ambitions to.
Speaker 4 (18:08):
Grow at least a Virgin's time. That's float quite nicely.
I mean, Bain did get lucky. It's taken a couple
of years of IPO preparations for it to get its
ducks in line here and relist the business. The domestic
aviation industry backdop just sort of got better and better
in that time. And if you're buying Virgin shares now,
you have to ask, is this as good as it
gets for the industry. If so, is Virgin doing anything
(18:32):
internally to increase its margins to be more robust and
a better position. Should should the industry not be as
good as it is now in the future. I mean
there's always skepticism buying shares of private equity, and that's healthy.
You know, Bain's made truckloads of money or ready from Virgin.
It's probably made three or four times the amount of
money put into it, and it's still going to own
thirty nine percent of the listed Virgin. As far as
(18:55):
private equity stories go, I'd say this is a good one.
You know, it's a financial investment that's stepped up in
a tough period, took risk oversur sensible turn around story.
But now, of course it's private equity and it's trying
to get some bang for its buck. It's trying to
make money and to do that it is selling shares
to ordinary Australian investors, to super funds, to institutional investors,
(19:15):
basically anyone that can Baine picked this up at the bottom.
It's now floating it is it floating at the top?
If not, where's the top? And what Convergent do between
now and then?
Speaker 3 (19:25):
I think that that's a good question ed. But they
have said that they still have costs that they can
keep on eliminating. They say the five years behind Quantus
when it comes to taking some of those transformation challenges
around it, around how they sell tickets, how they do
a lot of things. So they see that there is
still growth that they can make through just you know,
continuous improvements and incremental kind of revenue and margin improvement
(19:48):
that probably isn't there for Quantus.
Speaker 2 (19:51):
So Aisha, then what does all this mean for the
consumer and the cost of air travel? You mentioned before
fuel prices and the impact that the uncertainty in the
Middle East is having. What does that mean for the traveler?
Speaker 3 (20:04):
I think what we can see from the Australian domestic
market is that having two competitors only in aviation is
not great for the consumer. We're in a domestic aviation
market where we've seen the price of airfares between Melbourne
and Sydney routinely hit over one thousand dollars. We've had
periods where loads on planes have been over ninety percent full,
(20:28):
which is historically unheard of. So I think unfortunately for consumers,
this probably isn't going to be a great thing. Those
incremental improvements will be passed on to investors. If fuel
prices spike, virgins hedged for six months out, so you know,
the impact for investors will be minimal, but they do
pass on the impact of higher fuel prices in fuel
(20:50):
surcharges that are charged to consumers, So you know, as
geopolitical tensions ratchet up, you should probably be prepared to
pay a little bit more for your.
Speaker 2 (21:00):
And the market hasn't had very many big floats in
recent years. We've talked a lot about the shrinking of
the ax What does the virgin IPO mean for the
local stock market?
Speaker 4 (21:11):
This is a good news story for ax LESA like
this is Virgin coming home. There is no other owner
for it. Airlines globally are either owned by countries themselves
or they're listed. So yeah, this is good. It comes
for an AX the time when it needs more listings.
Public markets globally they are shrinking. The asex is shrinking.
If you look at the number and the value of
companies that are coming off the AX, you know, companies
(21:34):
that are being bought by private equity or super funds
or sovereign wealth investors or whatever. The vary of those
companies is much more than what's coming back through IPOs.
So this has been a big shift for Australia and
for Australians, And at least the public markets have been
so great for ordinary Australians for their super fund balancers
and as direct investors. We're all trying to work out
(21:54):
where the private markets, you know that's private equity and
the like, whether they can be so good for ordinary
Australians assex trying to work this out as well. And
while it does that, it's tanking with the listing rules
to try and encourage more IPOs. But Lisa Virgin showed
is you can get an IPO done. There are buyers
for shares, you just need the right story, the right
structure and the right price.
Speaker 3 (22:16):
I think this IPO just shows like, look at what
they've been through. They started these talks with investors before
Trump went crazy on tariffs, so you know they've come
through a monumental period in history to get this to market.
It shows the strength of the domestic Australian aviation market.
Speaker 2 (22:34):
A final question for both of you, then, how will
Virgin go from here? And is Australia's domestic aviation sector
destined to be a.
Speaker 4 (22:43):
Duopoly for the foreseeable future. Absolutely, Lisa Australia. I don't
think it's just not big enough for a big third player.
We've seen others try and fail. Look at Rex recently,
look at Bonza. Australia's even too small sometimes for a
second viable airline. We had Virgin go bust, we had
Anset go bust. Yes, they're in wobbly markets, but it
(23:04):
just shows you how hard it is to run a
decent sized scale network in Australia, which I think makes
it really hard to see a third player coming in
and really sticking it to Quantus and Virgin. That means
I think we'll be a two airline town for a
while yet. And Lisa, that's actually similar to what Australia
is like in a lot of other industries as well.
(23:25):
Look at supermarkets, we've got Woolworths and Coals. Look at
department stores it's Meyer and David Jones. Look at energy
it's agl and Origin. Australia is a country of jeopolis
and it's hard to see airlines being any different.
Speaker 3 (23:37):
I think no matter what we say, whether it's rational
or not, there will always be a third airline. I
think I disagree with you on this point ed. History
has shown us that someone will always try to challenge
contestant Virgin. They see this market as being big enough,
but you do need the scale, and I think that
that means that it will take a little bit of
(23:58):
time before we get that third competitor. And you know,
conditions are really ripe for Virgin. In the interim, I
think the investors have appetite for this. IPO has been
really strong, and that's a testament to the fact that
we know that no big competitor is coming to take
these guys on for at least the next few years.
Speaker 2 (24:18):
Thanks and thanks Aischa.
Speaker 4 (24:20):
Thanks for having us.
Speaker 2 (24:21):
Lisa Thanks Lisa, Thank you for listening to The Finn.
(24:42):
I'm Lisa Murray, with senior reporter Aisha Decretza and Chanticleer
columnist Anthony McDonald joining the podcast today. The Finn is
produced by Alex gu with assistance from Mandy Coolan. Fiona
Buffini is head of Premium Content. Our theme is by
Alex Goo. If you like the show and want to
hear more, follow us wherever you get your podcasts, and
(25:05):
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For more stories about markets, business and power, subscribe to
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you next week.
Speaker 1 (25:32):
The Australian Financial Review
The Australian Financial It was always going to be an
eventful day for Virgin Airlines as it returned to the
stock market on Tuesday, but no one predicted it will
be this dramatic. Israel's Defense minister has acknowledged that they
have carried out strikes against Iran, the first time in
month of Iran.
Speaker 2 (00:22):
Fired two waves of missiles overnight towards Israel.
Speaker 3 (00:26):
The United States as dramatically entered Israel's war against Iran.
Speaker 2 (00:30):
News of the temporary closure of Katari airspace threatened to
overshadow Virgin's float. In the days leading up to its listing,
Israel and Iran traded missiles and the US entered the fray.
The prospect of a broader conflict and a spike in
fuel prices was not good news for the airline industry.
(00:53):
But then suddenly, on Tuesday, the conflict deescalated and there
was talk of a ceasefire. Time for a relieved Virgin
CEO Dave Emerson to ring the bell.
Speaker 4 (01:08):
Investors are buying Virgin shares today as the airline goes
public in one of the most hotly anticipated floats.
Speaker 2 (01:16):
In a strong result, Virgin's shares jumped eleven percent on
the first day of trading. But now the airline must
stay on track and ensure history doesn't repeat.
Speaker 4 (01:26):
There's just something about airlines, There's something about aviation executives
is so tempting for these guys to expand and try
and compete with the likes of Quantas.
Speaker 2 (01:36):
Welcome to the Finn. I'm Lisa Murray. This week, senior
reporter Aisha decrets Her and chanticlear columnist Anthony McDonald on
Virgin's way back to the market, why it could struggle
to stay in its lane, and whether Australia can ever
sustain more than two airlines. It's Thursday, June twenty six.
(02:15):
Hi Aisha, Hi, and thanks for coming on the podcast.
Speaker 4 (02:18):
Thanks for having us, Lisa.
Speaker 3 (02:19):
Thanks Lisa.
Speaker 2 (02:20):
And when a company lists on the AOSX, it's usually
an exciting day, but Virgin's IPO was particularly dramatic on Tuesday.
Its executives were up in the early hours of the
morning dealing with the diversion of flights following Iran's decision
to launch missiles at a US base in Qatar, But
the day ended well. How would you rate Virgin's return to.
Speaker 4 (02:43):
The market, Lisa, This was in the hands of the gods,
and the gods.
Speaker 5 (02:46):
Smiled, so so much could have gone wrong, Like Virgin
did well to raise at six hundred and eighty five
million dollars for its IPO, but that was three weeks ago, Lisa,
like so much has happened in the past three weeks,
so much that could have really impacted investor's sentiment.
Speaker 4 (02:59):
And how would trade on listing. You know, you had
Israel and Iran and the US bombing Iran, the oil
price spike every the weekend, the threat of retaliation strikes
like at worst could have sunk the float. Lisa, like
Bayan might have had to have pulled this float. I mean,
at best, you would have thought it would scare off
some investors and the stock would trade down, But almost miraculously,
the whole thing calmed down Monday night in the US
(03:22):
right ahead of the listing on Tuesday morning austral In time,
Trump was even talking about a ceasefire in the Middle East,
which is something that we certainly didn't see coming. And
by midday when it was time to list, the market's
mood was risk on. Investors were keen to by stocks,
and Virgin landed in smooth markets. It opened up seven
and a half percent and held those gains for most
of its first day. Now normal times, Lisa, you'd say
(03:43):
that's a solid debut. It's nothing miraculous, But given what
the market conditions were like, given what's been happening in
the Middle East, you'd say it's a remarkable daboot.
Speaker 2 (03:56):
And before we get to what happens next, take us
back to mid two thousand when the airline launched as
Virgin Blue in a marketing blitz led by Richard Branson.
How did Virgin secure its place in the Australian aviation market.
Speaker 4 (04:12):
They launched with a mystery flight to Marichid of all places.
At the time, it was called Virgin Blue because its
first planes were red and blue is the Australians saying
for redhead now at least. It started services in August
two thousand, in the lead up to the Sydney Olympics.
(04:32):
Set up by Branson and Brett Godfrey, based in Brisbane
as a low cost carrier. At first it had only
two planes, but then in September two thousand and one.
Speaker 2 (04:40):
When the last flight touched down in Sydney this morning,
Ansets passed into aviation history.
Speaker 4 (04:46):
Antet Australia, which was the number two airline in Australia.
It collapsed and Virgin all of a sudden became the
second biggest airline now. It's I'm say Virgin contributed to
the collapse of Inset because it had turned down and
off from Singapore Airlines an Anset to buy Virgin and
(05:06):
Branson he actually called a press conference pretending he'd accepted
the deal.
Speaker 5 (05:10):
Anyway, I'm off to England with my court pavillion dollar
check and thank you very much.
Speaker 4 (05:16):
Before announcing he was only joking and ripped up the check.
I'm just joking. It's pitch was there was younger, funer
and less expensive than quantious. It did widespread marketing or.
Speaker 3 (05:30):
Richard Branson will launch an assault on the Australian domestic
travel market this morning, rebranding Virgin Blue as Virgin Australia.
Speaker 4 (05:38):
The big sort of change came in twenty eleven when
it rebranded as Virgin Australia. What we're building here is
an airline that he still has very competitive airfares, but
he's also very competitive at the front end of the aircraft.
To try and move the company on from its low
cost Virgin Blue roots. It became a more full service
airline and started targeting business flight.
Speaker 3 (06:00):
Virgin Australia has a new strategy and its rivalry with Quantus.
Speaker 2 (06:04):
It's unveiled a luxury aircraft for use on domestic roots Now.
Speaker 4 (06:09):
Twenty fourteen, Virgin bought Tiger Airways, an airline you might
remember now. It was sort of copying Quantus, which had
launched Jetstar as a low cost carrier to try and
keep Virgin Blue out of the market. And Virgin at
the time was run by a guy called John Borghetti.
There is an alternative now and it is for the
first time in over a decade, in fact, sinceanst stopped
(06:30):
playing Did you have a two carriers now that can
serve us all elements of the market. It was trying
to take on Quantas that was spending lots of money
on lounge's furniture, business class flights, all this costly sort
of premium stuff. And that's because there was a bit
of rivalry between Borghetti and Alan Joyce, who was running Quantus.
Speaker 2 (06:49):
Virgin chief executive John Borghetti took over Virgin after being
post over for the top job at Quantus three years ago.
Speaker 4 (06:55):
They both worked at quantas Joyce had won the CEO
spot and Borghetti went Virgin, and he decided to take
them on.
Speaker 3 (07:03):
John Borghetti, how satisfying is it to get this job
given you missed out on the CEO role at Quantus.
Speaker 4 (07:11):
I think this job is an incredible opportunity and one
that I'm looking forward to very much, irrespective of any
other job. As part of it, Virgin built a frequent
fly business called Velocity. At one stage it even sold
a stake and it's private equity, and then brought that
stake back using a lot of debt, closed borders and
grounded planes. The coronavirus pandemic has the airline industry facing
(07:33):
the worst crisis in its history. So by that time
the pandemic struck in early twenty twenty, Virgin all of
a sudden had lots of debt as planes were in
the sky, and the whole thing went into administration.
Speaker 2 (07:51):
I share all airlines were grounded by COVID. Why was
Virgin affected more than other airlines and how did it
manage to turn the business around?
Speaker 3 (08:01):
So I think his aunt mentioned had just had too
much debt. More than five billion dollars had been racked up,
and I think the recriminations can fly over who acquired
all of that debt and on what and whether it
was useful. Some people would say that chasing quantas and
trying to be premium was a good strategy. Others would
say buying the stake in Velocity back at the wrong
time meant that Virgin tipped into administration. So people can
(08:23):
kind of argue over what was the straw that broke
the Campbell's back. But I think what we can say
is that the foreign shareholders that sat on Virgin's register,
which were Singapore Airlines, Eddie had China's nan Chan Group,
all owned about twenty percent each, and they sort of
weren't the most useful of shareholders because all state owned,
they didn't have necessarily shareholder profits at the heart of
(08:46):
what they did, and they all had a different strategic
plan for Virgin. The airline had to temporarily stand down
about eight thousand of its workers while borders were shut
during that pandemic. Virgin Ground did eight thousand people now
out of work.
Speaker 4 (09:03):
It is what it is done, it is what it is.
We're all in this together. There's nothing we could do.
Speaker 3 (09:08):
Paul S Garret, the CEO who did buy back that
stake in Velocity. He'd asked the government, Morrison government for
a one point four billion dollar loan.
Speaker 4 (09:17):
There was an enormous man of estort Peter to try
and get the support from the federal government. And look,
it was their decision and we respect that decision because
of the effort we put in. It felt a little
bit disappointing, but there.
Speaker 3 (09:29):
Was a bit of lobbying behind the scenes by a
number of players, including Quantis and ultimately Scott Morrison and
Josh Fredenberg, who was the Treasurer at the time. They
went for a market based solution that was proposed by
Nicholas More, the former CEO of Macquarie, who said that
actually allowing the airline to tip into administration was a
better kind of option and letting the market find a
(09:51):
solution so very much. The imperative from Moore and others
at the time was to make sure that whatever happened
coming out of the pandemic, there was still a strong
competitor Aquantas. So what happened was Deloitte was appointed as
the administrator.
Speaker 4 (10:06):
Virgin's the biggest casualty so far as COVID nineteen ricks
havoc on Australia's locked down economy.
Speaker 3 (10:13):
There was a sale process run and in the end
it was US private equity firm Bank Capital that won
to rescue Virgin out of administration. Private equity fund Bain
Capital looks set to become the new owner of Virgin
Australia after New York hedge fund Cyrus Capital Partners withdrew
(10:33):
its offer. They sacked three thousand staff and they really
bought an airline that had halved the number of aircraft
and renegotiated hundreds of contracts to reset its cost base.
Speaker 2 (10:49):
And former CEO Jane Hrdlicka came on board once Bain
took over. How much credit can she take for the
turnaround and why didn't she take the airline all the
way to the IPO.
Speaker 4 (11:02):
Jane used to work for Baane and Company. That's the
management consulting arm that's the sister company to Baane Private Equity,
and there's a lot of crossover between the two. They
know her, she knows them. She was involved in this
from the start before Virgin collapsed. When Bain Private Equity
opened its file, they pretty quickly got her on. She
used to work for Jetstar. She knows airlines she knows
(11:23):
Bain and she was available. She's quite dogged, she's well
known in the market, she's got a particular style, and
they thought this is someone who can really be involved
in the turnaround with us. It was a bit controversial
at the time because Jane can be a divisive character,
but she can also be quite effective at what she does. Virgin,
as I just said, was run by a blake called
Paul Scurra. It was sort of widely anticipated that he
(11:45):
would continue to run Virgin under Baine's ownership, but pretty
much as soon as Baine got the keys, they threw
them over to Jane and said do your best. Yeah.
Speaker 3 (11:54):
There was always this tension though, I think, and between
Scurr's plan for the airline, which was to ke keep
it internationally focused, to keep it as a competitor Aquantus
on more levels, and what Bain and Herloko wanted to do,
which was keep this a very low cost, more domestically
focused the airline that wasn't flying long haul international anymore.
Speaker 4 (12:15):
So Bain's turn around under Jane it was a bit
of good management. It's some good luck. I mean, they
used the administration framework and the laws around it to
completely reset the airline, get rid of aircraft's, renegotiate contracts,
refine the customer proposition, change the routes it flies like.
In meetings with investors in April, it told them it
had changed five hundred contracts since it first went into administration,
(12:40):
which is a huge number, Lisa, and it saved a
lot of money. So Bain then has the airline after
the pandemic. I mean the sector was always going to
bounce back. It took a while. Remember that the lockdowns
lasted through twenty twenty, twenty twenty one. They were on
and off. But then this revenge travel boomed. People were
sitting on savings. The flood gates really opened. Aline capacity
was lower, and so if you did have a plane
(13:02):
with seats on it, prices were up and you were
laughing right at the same time, Lisa. Quantas, which is
undisputably Australia's biggest airline, number one, it's got two thirds
of the domestic market, it shot itself in the foot.
Speaker 5 (13:16):
You know.
Speaker 4 (13:16):
It's customers were raging against flight cancelations, COVID credits, lots, baggage,
all this basic customer service stuff that Quantus either forgot,
how to do during the pandemic, or just wasn't set
up to do anymore. It's brand plummeted in the rankings,
while Virgins, which looked a bit more sensible and had
its act together, perhaps was easier because it was smaller,
(13:36):
It's rose up as a result. Now, through it all,
Virgin created a new lane for itself and it stayed
in it. Jane's an absolute force. She did a good
job in firing up the Virgin's staff, getting deals done
with unions, even locking in guitar airways as big shareholders.
But the problem is Lisa that investors were a bit
wary of her. She wasn't the one to take it
(13:58):
to the IPO. She did a lot of the heavy lifting,
a lot of the prep work, got this turnaround on
track and sort of helped design it. But she wasn't
the one ringing in the bell at the ASEX on Tuesday.
And you have to ask why, And it's just because
the investors did push back against her. Bain realized that,
so they replaced Jane with another Bayin and Company former
(14:19):
consultant called Dave Emerson. I mean, he has also been
involved in the turnaround for a few years now. And
the message that he's been selling to investors is that
Virgin has found its lane. It's a third of the
domestic aviation market. You've got Conscious above it, you've got
jet Star below it. Virgin's just in the middle, making
pretty good, middling sort of margins from everyday business customers
(14:42):
and holiday makers. At least, it's a nice little lane
to swim in. Now. The problem is Virgin's been in
a nice little lane before. Remember it was the budget
carry out I was doing reasonably well. There's just something
about airlines. There's something about aviation executives that avgas can
go to their heads and it's just so tempting them
to go up market, to have business class flash lounges,
(15:03):
so tempting for these guys to expand and try and
compete with the likes of Quantus. So you have to
wonder whether Virgin will be able to stay in its
lane long term. I share.
Speaker 2 (15:35):
We're talking about Virgin Airlines, which floated on the Stock
Exchange on Tuesday after managing an impressive comeback from its
collapse during the pandemic. What's the outlook for Virgin? Will
it stay in its lane or do you think like
Ant says it might try and take on Quantus and
at some point upset the state of play in the
(15:56):
aviation market.
Speaker 3 (15:58):
I think it's very that Virgin has told investors that
it knows its place. It wants to be the great
second airline in Australia and it's very comfortable doing that.
It's a very very profitable place to.
Speaker 2 (16:11):
Be right now.
Speaker 3 (16:12):
So the outlook right now is helped by very very
solid domestic aviation industry. Australia is unique in having only
two airlines at the moment. You know, the Regional Express
that tried to take on Virgin and Quantus on capital
city routes and ended up in its own administration process.
We also saw discount airline Bonser that came and tried
(16:33):
also failed within a year. So I think when it
comes to staying in your lane, the thing that always happens,
and you know, we can say that it's a market
for two airlines until we're blue in the face. There
will always be a third competitor that comes and goes.
You know, whether they last for more than twelve months
is another story, but someone will try and I think
(16:53):
at that point that's when airlines need to decide what
is going to be your proposition, and I think that
one of the things Virgin has emphasized as a point
of growth as it goes to investors with a growth
story is that the Velocity frequent flyer program will grow. Now,
growing your frequent flyer program when you don't have a
(17:14):
long and big international network like Quantus is quite challenging.
Do people want to be part of a frequent flyer
network where you can redeem on flights from Melbourne to
Sydney or to the Gold Coast versus going to London
or flying business class life flat to New York. Probably not.
It's a less attractive proposition, So there will always be
(17:36):
the temptation to get back into long haul. The problem
is scale, So getting new planes to be able to
fly enough to make your network a genuine competitor to
Quantus is going to take a long time. You know,
right now we're seeing uncertain fuel prices with what's happening
in the Middle East. There are a lot of unknowns
in the market, and that's always the case with aviation.
(17:59):
But I think we can be sure of you kind
of two things. One that a third competitor will spring up,
and two, as ant says that at some point they'll
get ambitions to.
Speaker 4 (18:08):
Grow at least a Virgin's time. That's float quite nicely.
I mean, Bain did get lucky. It's taken a couple
of years of IPO preparations for it to get its
ducks in line here and relist the business. The domestic
aviation industry backdop just sort of got better and better
in that time. And if you're buying Virgin shares now,
you have to ask, is this as good as it
gets for the industry. If so, is Virgin doing anything
(18:32):
internally to increase its margins to be more robust and
a better position. Should should the industry not be as
good as it is now in the future. I mean
there's always skepticism buying shares of private equity, and that's healthy.
You know, Bain's made truckloads of money or ready from Virgin.
It's probably made three or four times the amount of
money put into it, and it's still going to own
thirty nine percent of the listed Virgin. As far as
(18:55):
private equity stories go, I'd say this is a good one.
You know, it's a financial investment that's stepped up in
a tough period, took risk oversur sensible turn around story.
But now, of course it's private equity and it's trying
to get some bang for its buck. It's trying to
make money and to do that it is selling shares
to ordinary Australian investors, to super funds, to institutional investors,
(19:15):
basically anyone that can Baine picked this up at the bottom.
It's now floating it is it floating at the top?
If not, where's the top? And what Convergent do between
now and then?
Speaker 3 (19:25):
I think that that's a good question ed. But they
have said that they still have costs that they can
keep on eliminating. They say the five years behind Quantus
when it comes to taking some of those transformation challenges
around it, around how they sell tickets, how they do
a lot of things. So they see that there is
still growth that they can make through just you know,
continuous improvements and incremental kind of revenue and margin improvement
(19:48):
that probably isn't there for Quantus.
Speaker 2 (19:51):
So Aisha, then what does all this mean for the
consumer and the cost of air travel? You mentioned before
fuel prices and the impact that the uncertainty in the
Middle East is having. What does that mean for the traveler?
Speaker 3 (20:04):
I think what we can see from the Australian domestic
market is that having two competitors only in aviation is
not great for the consumer. We're in a domestic aviation
market where we've seen the price of airfares between Melbourne
and Sydney routinely hit over one thousand dollars. We've had
periods where loads on planes have been over ninety percent full,
(20:28):
which is historically unheard of. So I think unfortunately for consumers,
this probably isn't going to be a great thing. Those
incremental improvements will be passed on to investors. If fuel
prices spike, virgins hedged for six months out, so you know,
the impact for investors will be minimal, but they do
pass on the impact of higher fuel prices in fuel
(20:50):
surcharges that are charged to consumers, So you know, as
geopolitical tensions ratchet up, you should probably be prepared to
pay a little bit more for your.
Speaker 2 (21:00):
And the market hasn't had very many big floats in
recent years. We've talked a lot about the shrinking of
the ax What does the virgin IPO mean for the
local stock market?
Speaker 4 (21:11):
This is a good news story for ax LESA like
this is Virgin coming home. There is no other owner
for it. Airlines globally are either owned by countries themselves
or they're listed. So yeah, this is good. It comes
for an AX the time when it needs more listings.
Public markets globally they are shrinking. The asex is shrinking.
If you look at the number and the value of
companies that are coming off the AX, you know, companies
(21:34):
that are being bought by private equity or super funds
or sovereign wealth investors or whatever. The vary of those
companies is much more than what's coming back through IPOs.
So this has been a big shift for Australia and
for Australians, And at least the public markets have been
so great for ordinary Australians for their super fund balancers
and as direct investors. We're all trying to work out
(21:54):
where the private markets, you know that's private equity and
the like, whether they can be so good for ordinary
Australians assex trying to work this out as well. And
while it does that, it's tanking with the listing rules
to try and encourage more IPOs. But Lisa Virgin showed
is you can get an IPO done. There are buyers
for shares, you just need the right story, the right
structure and the right price.
Speaker 3 (22:16):
I think this IPO just shows like, look at what
they've been through. They started these talks with investors before
Trump went crazy on tariffs, so you know they've come
through a monumental period in history to get this to market.
It shows the strength of the domestic Australian aviation market.
Speaker 2 (22:34):
A final question for both of you, then, how will
Virgin go from here? And is Australia's domestic aviation sector
destined to be a.
Speaker 4 (22:43):
Duopoly for the foreseeable future. Absolutely, Lisa Australia. I don't
think it's just not big enough for a big third player.
We've seen others try and fail. Look at Rex recently,
look at Bonza. Australia's even too small sometimes for a
second viable airline. We had Virgin go bust, we had
Anset go bust. Yes, they're in wobbly markets, but it
(23:04):
just shows you how hard it is to run a
decent sized scale network in Australia, which I think makes
it really hard to see a third player coming in
and really sticking it to Quantus and Virgin. That means
I think we'll be a two airline town for a
while yet. And Lisa, that's actually similar to what Australia
is like in a lot of other industries as well.
(23:25):
Look at supermarkets, we've got Woolworths and Coals. Look at
department stores it's Meyer and David Jones. Look at energy
it's agl and Origin. Australia is a country of jeopolis
and it's hard to see airlines being any different.
Speaker 3 (23:37):
I think no matter what we say, whether it's rational
or not, there will always be a third airline. I
think I disagree with you on this point ed. History
has shown us that someone will always try to challenge
contestant Virgin. They see this market as being big enough,
but you do need the scale, and I think that
that means that it will take a little bit of
(23:58):
time before we get that third competitor. And you know,
conditions are really ripe for Virgin. In the interim, I
think the investors have appetite for this. IPO has been
really strong, and that's a testament to the fact that
we know that no big competitor is coming to take
these guys on for at least the next few years.
Speaker 2 (24:18):
Thanks and thanks Aischa.
Speaker 4 (24:20):
Thanks for having us.
Speaker 2 (24:21):
Lisa Thanks Lisa, Thank you for listening to The Finn.
(24:42):
I'm Lisa Murray, with senior reporter Aisha Decretza and Chanticleer
columnist Anthony McDonald joining the podcast today. The Finn is
produced by Alex gu with assistance from Mandy Coolan. Fiona
Buffini is head of Premium Content. Our theme is by
Alex Goo. If you like the show and want to
hear more, follow us wherever you get your podcasts, and
(25:05):
consider rating and reviewing us as it helps others find us.
For more stories about markets, business and power, subscribe to
The Financial Review at AFI dot com slash subscribe, See
you next week.
Speaker 1 (25:32):
The Australian Financial Review
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