Are Virgin Australia Shares A Buy? Analyst Begins Coverage

Virgin Australia shares (ASX: VGN) have given holders plenty to chew over this year, down 21.26% YTD, as rising oil prices apply more than a dose of pressure to airlines. A fresh initiation of coverage could be the dose of positivity needed, with a new bullish note suggesting there could be plenty of upside from here.

RBC Capital initiated coverage of with an Outperform rating and A$3.50 price target, marking a fresh vote of confidence in the carrier’s post-administration turnaround and suggesting 27% upside from current levels.

The Virgin Australia share price began June with a red day, down 0.72% at A$2.74, amid broader pressure from elevated oil prices. The stock has traded in a volatile range through recent months, although VGN has last week regained its 50-day moving average, a short term bullish indicator.

RBC’s bullish call joins earlier coverage from UBS, which initiated with a Buy rating and A$3.90 target, creating some analyst support at prices significantly above current trading levels.

Analyst View

RBC analyst Owen Birrell’s initiation centres on Virgin’s multi-year transformation program, which has been systematically rebuilding margins since Bain Capital acquired the carrier out of administration in 2020. The restructuring saw Virgin exit unprofitable routes, simplify its fleet, and shift toward a focused mid-market positioning in Australia’s domestic duopoly alongside Qantas.

Management has guided that underlying EBIT and EBIT margin are expected to be higher in the second half of FY26 compared with the prior year, building on steady improvement from pre-COVID levels. The carrier has moved EBIT margins from negligible or negative territory during administration to high single digits, with targets to push into low double digits as efficiency gains and operating leverage compound.

On the fuel front, Virgin has demonstrated disciplined risk management amid the latest oil price surge.

The company disclosed in April that it has hedged approximately 92% of its Brent crude exposure and 71% of refining margin exposure for the remainder of FY26. To further protect earnings, Virgin has raised airfares and trimmed capacity in response to cost pressures, while maintaining its full-year outlook.

The carrier’s strategic position benefits from Australia’s concentrated domestic market structure.

With Qantas and its low-cost subsidiary Jetstar as the primary competition, Virgin holds meaningful share in a market where capacity discipline and pricing power can be more readily exercised than in fragmented international markets.

RBC’s thesis rests on the view that markets are underpricing the durability of Virgin’s earnings improvement. The firm sees the transformation program driving structural margin expansion rather than merely cyclical recovery, with cost-out benefits and operational efficiencies flowing through over the next several years.

A Word of Caution

The macro backdrop is still expected to play a key role in what happens at Virgin Australia, and with oil prices having jolted higher during the Australian evening, the picture remains dynamic. Oil prices are 7%+ higher back in the mid to high $90s, which could provide even better entry opportunities for those convinced on the name. If you are considering trading stocks, make sure you have a proper risk management strategy, size your positions correctly, and ensure you are doing your own fundamental checks. Analyst targets are notoriously changeable, so whilst they are useful, they should not be the foundation of your strategy.