Virgin Australia Holdings Ltd (ASX: VGN) shares are rocketing higher in Thursday lunchtime trade. At the time of writing, the airline's shares are up 8.22% and changing hands for $2.44 a piece.
Today's jump has helped recover some of the losses the stock has shed over the past month, but the share price is still down 30% for the year to date and 25% lower than when the company launched on the ASX in late June last year.
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What is driving the airline's shares higher today?
There isn't any price-sensitive news out of Virgin Australia today to explain the current share price surge.
However, investors could be flocking to the ASX airline share following an announcement out of Webjet Group Ltd (ASX: WJL) yesterday.
The company announced a change to its commercial agreements with Virgin Australia ahead of the ASX open on Wednesday.
Webjet said its Webjet Marketing subsidiary has been receiving commission payments from Virgin Australia Airlines and Virgin Australia International Airlines relating to the sale of Virgin flights and ancillaries, along with specified performance targets.
But the online travel agency said that Virgin Australia has told Webjet it will substantially reduce its commission streams and commercial arrangements from the 1st of July 2026.
A turnaround in sentiment could also be supporting Virgin Australia's share price increase today. Investors are reacting positively to resilient travel demand and stabilising fuel costs.
There is growing optimism around an imminent peace agreement between the US and Iran, which would help jet fuel supply.
The company also recently confirmed its FY26 guidance, which has helped gather more confidence from investors.
In April, Virgin Australia said its FY26 financial guidance is unchanged. Despite fuel prices almost doubling, the airline said it still expects its underlying EBIT to improve in the second half of FY26.
The airline's fuel costs are expected to be around $30 million to $40 million above its earlier forecasts. But it has strong hedging (92% of its Brent crude and 71% of refining margin exposure is hedged for the remainder of FY26), which means the group is protected against most price rises.
Virgin Australia shares have been under pressure this year
The sentiment shift comes on the back of several headwinds facing the airline over the past couple of months.
Ongoing conflict in the Middle East severely restricted the supply of jet fuel (which is derived from refined crude oil).
The airline has previously raised its domestic airfares in response to rising jet fuel costs in an effort to maintain or even boost revenue. But investors were still concerned about the airline's operating costs and profits, and many turned their backs on the shares.
Can Virgin Australia shares keep climbing?
Analysts are very bullish about the outlook for the ASX travel stock over the next 12 months.
TradingView data shows that all eight analysts have a buy consensus on the shares. The average $3.59 target price implies a potential 47% upside ahead, at the time of writing. But others think Virgin Australia's shares have the potential to fly another 70% higher to $4.15.
