Like many travel company shares, Virgin Australia Holdings Ltd (ASX: VGN) shares have been under pressure since the conflict in the Middle East broke out in late February.
But the downwards pressure on the company's share price has created a buying opportunity, according to the team at RBC Capital Markets, which has just initiated coverage of the company with an outperform rating.
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What's the company saying?
For some insight into how Virgin is faring, let's check in on the company's last update to the market.
Back in mid-April, the company said there had been significant fuel price volatility, but that it was well-prepared.
As the company said:
In FY26 the Group continues to experience strong customer demand with higher fuel costs largely mitigated through effective fuel hedging and recent airfare and capacity adjustments. This has resulted in Virgin Australia's FY26 financial guidance remaining unchanged with 2HFY26 underlying EBIT and underlying EBIT margin expected to be higher than 2HFY25.
Virgin said fuel was one of its highest costs, representing 21% of total operating expenses.
The company added further clarity on its hedging program:
Virgin Australia operates a fuel hedging program to manage the risks from fuel price volatility which includes hedging both Brent crude oil and refining margins when economically viable. The price of jet fuel has been extremely volatile and has more than doubled since the end of February 2026 which impacts fuel costs for the June 2026 quarter. Virgin Australia's policy is to operate hedging with higher volumes in the short term to mitigate this price volatility, with other operational levers including fare and capacity adjustments available to be implemented over time. For the remainder of 2HFY26, the Group is hedged 92% for Brent crude oil and 71% for refining margins. Therefore, the exposure in FY26 is only the unhedged portion of both Brent crude oil and refining margins. This is expected to result in an increase of fuel costs for 2HFY26 of approximately $30-40m2 compared to previous expectations.
Shares looking like good value
The RBC team said in their research note to clients this week that they believed Virgin and Qantas Airways Ltd (ASX: QAN) would remain focused on internal improvements, "and therefore limit market share chasing activities that could or would instigate another capacity war".
The RBC team said Virgin's transformation program could deliver significant earnings expansion through FY25 to FY28, and given this outlook, the company's shares were undervalued at the current share price.
RBC said:
With a solid earnings growth outlook and trading at a discount to its peers we believe VGN is attractive at current levels. Our 12-month rounded Price Target of $3.50 implies a ~27% return, so we initiate with an Outperform rating. However, we add a Speculative Risk qualifier to reflect VGN's: (i) limited pricing power, (ii) low earnings diversification, (iii) high operating leverage, and (iv) limited equity free-float, leaving investors more exposed if its market conditions deteriorate.
Virgin Australia shares are currently trading at $2.64, implying a 32.6% return if RBC's price target is met. The company is valued at $2.15 billion.
