Virgin Australia Holdings Ltd (ASX: VGN) shares are slipping today.
Shares in the recently listed ASX airline stock, and chief competitor to Qantas Airways Ltd (ASX: QAN), closed yesterday trading for $3.22. During the Tuesday lunch hour, shares are changing hands for $3.19 apiece, down 0.9%.
For some context, the All Ordinaries Index (ASX: XAO) is up 0.2% at this same time.
Virgin Australia's initial public offering (IPO) was priced at $2.90 a share. The airline began trading on the ASX on 24 June, with shares opening at $3.12 each and closing the day at $3.23.
Virgin Australia shares closed at $3.34 apiece on 25 June and hit intraday highs of $3.405 on 26 June.
The ASX airline stock hit closing lows of $2.98 on 7 July before regaining some positive traction.
But with an eye on the potential risks, Catapult Wealth's Dylan Evans is cautious on the airline's outlook (courtesy of The Bull).
Image source: Getty Images
Should I sell Virgin Australia shares today?
"Virgin's return to the ASX is well timed, recently listing against a favourable backdrop of lower fuel prices," said Evans, who has a sell recommendation on Virgin Australia shares.
Indeed, with jet fuel costs counting as the second biggest expenditure for global airlines, 24 June was an auspicious day for the company's IPO.
You see, on 19 June Brent crude oil was trading for US$78.88 per barrel. By 24 June, that same barrel was trading for just US$67.14, a decline of 14.9%. The oil price currently stands at US$68.72 per barrel.
But, like Warren Buffett, Evans cites the airline's capital-intensive nature and vulnerability to shocks outside of its control (think COVID) as reasons to steer clear.
"We're cautious about owning airlines for a long period," he said. "Airlines remain a low margin industry with significant capital demands amid a long history of failures."
Summing up his sell recommendation on Virgin Australia shares, Evans concluded:
One doesn't need to look further than our own backyard to see these struggles, with the recent collapse of REX and Bonza, or Virgin's own collapse into voluntary administration during the pandemic in 2020.
What happened with the Virgin IPO?
The ASX airline stock raised $685 million via the sale of 236.2 million Virgin Australia shares.
New investors held some 30% of the company, with Bain Capital remaining the largest shareholder. Qatar Airways is another core, strategic investor.
The airline operates a fleet of over 100 aircraft flying to 38 destinations.
