Bain Capital Evaluating Potential Virgin Australia Initial Public Offering Amid Rising Travel Demand

Bain Capital is considering an initial public offering of Australia’s second-largest airline, which would be a new test of investor appetite for carriers during a turbulent postpandemic recovery.

On Monday, Bain Capital announced that it will soon begin seeking advice from advisers on the best timing, structure, and metrics for relisting Virgin Australia on the Australian Securities Exchange. This is the first step in the process, and Bain Capital is committed to working closely with all stakeholders to ensure a successful relisting.

In 2020, the private-equity firm acquired Virgin Australia after the airline collapsed into insolvency due to the Covid-19 pandemic. Australia closed its borders to noncitizens for nearly two years, while its states and territories adopted different strategies when policing their internal borders, in some cases setting new rules for passengers midflight.

Virgin Australia was listed on Australia's main stock exchange for 16 years before it was acquired by Boston-based Bain Capital for $2.45 billion. It competes with Qantas Airways Ltd.

Air New Zealand flies to a variety of domestic and international destinations, including Bali, Indonesia, and Queenstown, New Zealand.

Last year, the carrier established a partnership with United Airlines Holdings Inc. and has been bolstering its international alliances, including expanding a decade-old agreement with Singapore Airlines Ltd. It also unveiled a new daily route between Cairns—a city in northeastern Australia—and Tokyo, which will commence in June. This is part of the carrier's larger strategy to expand its international reach and strengthen its position in the market.

"The business is doing well," said Mike Murphy, a partner at Bain Capital in Sydney. "We're looking at how to best position Virgin Australia for continued growth and long-term success in the coming months."

"Bain Capital plans to keep a large part of its ownership in the airline if it goes public," he said.

Bain Capital is committed to supporting Virgin Australia's growth and sustainability, according to Mr. Murphy.

Bain Capital said that no decisions have been made about when or whether a relisting of the airline will occur.

Virgin Australia sought bankruptcy protection in April 2020 as the pandemic upended global travel. The company had furloughed the majority of its 10,000 workers in an effort to stave off insolvency and explored seeking a bailout from the Australian government. However, lawmakers refused to prop the company up, citing its foreign ownership, which included Etihad Airways, Singapore Airlines and Chinese conglomerate HNA Group Co.

The commercial aviation industry has been working to recover from the pandemic, even as many countries have relaxed border restrictions. Australia reopened its border to tourists in February 2022, which should help the aviation industry there.

Airlines around the world have struggled with labor shortages and absenteeism among staff when they fall ill, leading to flight delays, cancellations, and lost luggage. Fuel costs have surged after Russia's invasion of Ukraine drove up global energy prices.

There are signs that conditions are improving for airlines. American Airlines Group Inc. last week raised its revenue guidance for the recently ended quarter as demand for air travel remained strong through the holiday season, even as travelers contended with higher fares. This shows that while many carriers have yet to return to full capacity, the demand for air travel is still strong.

In November, Qantas raised its half-year profit guidance and said its net debt should be significantly lower than expected. The carrier said people appeared to be making travel a priority and that limits on international capacity seemed to be spurring a rise in domestic vacations. This is good news for the airline, which has been struggling in recent years.

Last week, a new Australian budget carrier, Bonza Aviation Pty Ltd., was granted regulatory approval to begin passenger flights. This new airline will provide affordable travel options for Australians, and is expected to begin operations later this year.

Bain Capital's Mr. Murphy said Virgin Australia, led by Chief Executive Jayne Hrdlicka, had achieved an impressive transformation. Before the pandemic, the airline had struggled to turn a profit on its international routes, although its domestic operations and loyalty program were moneymakers. However, under Ms. Hrdlicka's leadership, the airline has managed to turn things around and is now on track to become profitable again.

"Bain Capital will ensure that these preliminary deliberations are not a distraction for Virgin Australia management," Mr. Murphy said. "They can remain 100% focused on their roles."