Qantas Airways Ltd (ASX: QAN) and Virgin Australia Holdings Ltd (ASX: VGN) shares give investors two different ways to invest in Australian aviation.
I think both are worth watching, but my preference is clear.
I would buy Qantas shares by far.
Virgin has some appeal on valuation, but I think Qantas has the stronger business, broader earnings base, better dividend outlook, and more attractive long-term investment case.
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Virgin Australia shares look cheap
Virgin Australia is the cheaper of the two airline stocks on headline earnings multiples.
According to CommSec, consensus estimates point to earnings per share of 50 cents in FY26, 46.9 cents in FY27, and 54.4 cents in FY28.
Based on a share price of $2.64, that puts Virgin on around 5 times FY26 earnings, 6 times FY27 earnings, and less than 5 times FY28 earnings.
That looks inexpensive.
Virgin also has a clearer position than it had in the past. The business is now more focused, and its role in the Australian market appears more disciplined. It has a well-known brand, exposure to domestic travel, and the potential to benefit if demand remains solid.
However, I do not think the low valuation is enough to make it my preferred pick.
Airline earnings can move quickly when fuel prices rise, competition increases, or demand weakens. A low price-to-earnings (P/E) ratio can look attractive, but it needs to be weighed against the quality and resilience of the earnings.
The dividend outlook is also modest. CommSec estimates dividends per share of 5 cents in FY26 and 4.5 cents in FY27, implying dividend yields of around 1.9% and 1.7%.
Virgin Australia may do well from here, but I think there is a better airline stock to buy.
Why I prefer Qantas shares
Qantas trades on a higher valuation, but I think it deserves to.
CommSec estimates point to earnings per share of 98.4 cents in FY26, $1.16 in FY27, and $1.15 in FY28.
Based on a share price of $9.21, that puts Qantas on around 9 times FY26 earnings and around 8 times FY27 and FY28 earnings.
That is more expensive than Virgin, but I do not think it looks stretched for a business with Qantas' advantages.
The dividend outlook is also much stronger. CommSec forecasts dividends per share of 39.6 cents in FY26, 44.8 cents in FY27, and 56.2 cents in FY28. That implies forward yields of around 4.3%, 4.9%, and 6.1%.
I would not treat an airline as a defensive dividend share. But if those forecasts are achieved, the income stream could become a meaningful part of the total return.
What I like most about Qantas is the quality of the overall business.
It has the premium Qantas brand, Jetstar for value-focused travel, a strong domestic position, international exposure, and a loyalty business that adds another layer to the investment case.
That loyalty business is a major difference in my view. Frequent Flyer points, partners, financial products, retail offers, and customer engagement give Qantas ways to earn from its customer base beyond simply selling seats on planes.
Qantas also has more strategic flexibility. Fleet renewal, network adjustments, premium travel, low-cost travel, loyalty, and capital management all give the group several levers to pull over time.
Foolish Takeaway
Virgin Australia may appeal to value-focused investors, but Qantas is the clear winner for me.
I think its higher valuation is justified by the quality of the business, the strength of its brands, and the broader ways it can generate earnings over time.
The share price will still be volatile at times. That comes with the airline sector. But for investors looking for the ASX airline stock to buy and hold, I think Qantas is comfortably the better choice.
