Dear readers,

I am back from Singapore. I was there to moderate a conference and I’ll have a few dispatches from the event to share with you, starting with today’s update on the Virgin Australia post-bankruptcy transformation.

Throughout history, we know airlines have been lousy investments. Every time investors think the business finally has turned the corner, something comes up — pandemic, war, geopolitical unrest. Just ask Warren Buffet, who returned to airline investing during the last cycle only to take a loss when he sold all of his holdings in 2020.

There is one type of investment that often works. Private equity — yes: big, bad private equity — has a decent track record taking airlines private, retooling them, and repackaging them for an IPO. The best deals follow a similar pattern: A shrewd firm buys a struggling airline with a known brand, jettisons bloat and costs, and turns it into a low-cost or ultra-low-cost carrier. In the United States, Apollo Global Management has made a nice return on Sun Country Airlines, while Indigo Partners is making progress on Frontier Airlines.

Now, Bain Capital, the American private equity firm, is working its magic on Virgin Australia after buying it while it was in bankruptcy in 2020 for $3.5 billion Australian ($2.36 billion U.S.).

Even before the pandemic, Virgin Australia was a mess — an undersized competitor to Qantas that tried to mimic the larger airline despite not having the scale. It flew tiny fleets of Airbus A330s and Boeing 777s1, as well as turboprops, and it had a regional arm in Western Australia with Fokker 100s and Airbus A320s. In the fiscal year that ended in June 2019 — a booming time for other airlines — Virgin Australia lost almost $350 million Australian.

It's a much different airline now. The widebodies and turboprops are gone, and the Fokkers are on their way out. Virgin Australia is now a lean, nearly-all-Boeing 737 operator, and according to reports, it is on the verge of what could be a profitable IPO.2 The company says it is making money, though it hasn’t released much detail.3

Dave Emerson, the airline's chief commercial officer, spoke last week at the Aviation Festival. Emerson is an American who last worked for an airline in 1993, in America West's revenue management department. Most recently, he helped lead the airline practice at Bain & Co., and he told me he’s having a blast back on the inside. I interviewed Emerson in Singapore and Bloomberg's Danny Lee spoke to him on stage. Here are a few highlights of both conversations.

Virgin Australia Should Make Bain Capital A…

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