Qantas has a higher valuation than Virgin Australia, but I think its brands, loyalty business, and dividend outlook give it the edge.

Qantas Airways Ltd and Virgin Australia Holdings Ltd 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.

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.

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Credits: Qantas

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The budget airline branded the possible takeover approach from Castlelake as “highly opportunistic” and said it has not held talks with the US investment fund.

Castlelake revealed late on Friday, after the stock market close in London, that it was in the early stages of considering an offer for easyJet, but had not yet approached the firm’s board.

The American firm, which confirmed it owns a stake of around 2.14% in easyJet through shares held on behalf of funds it manages, said on Monday any offer would be for “no less than” 403.23p a share, valuing the airline at a minimum of £3.06 billion. Shares closed on Friday at 398p each.

The carrier said the takeover interest comes at a time when its share price has been pushed lower by worries over the impact of the Iran war on the airline sector.

The budget airline said on Monday: “The board notes the highly opportunistic timing when easyJet’s share price is temporarily depressed due to the current situation in the Middle East and its impact on customer confidence and jet fuel prices.”

It highlighted its strong financial position and said it remained focused on its medium-term target to deliver more than £1 billion in pre-tax profits.

The Luton-based firm said it also “notes the considerable regulatory, financial and other execution challenges associated with a potential takeover of easyJet”.

However, it said it has a duty to maximise shareholder value and would “consider any proposal, should one be made”.

Castlelake has until 5pm on June 26 make a firm offer or walk away under UK takeover rules.

Led by executive chairman and founder Rory O’Neill, Castlelake and has assets under management worth $36 billion (£27 billion).

It entered talks in January with bankrupt US carrier Spirit Airlines over a possible takeover.

Castlelake has also previously bailed out collapsed Scandinavian Airlines (SAS) and then sold on its shares to Air France-KLM.

Richard Hunter, head of markets at Interactive Investor, said a swoop on easyJet would “capitalise on a share price which has fallen by 31% over the last year, with the company flitting in and out of the FTSE 100”.

“In addition, easyJet now has the traditionally loss-making first half of its year out of the way, while its holiday business continues to grow at pace, underlining its potential attractiveness,” he said.

In interim results last month, easyJet reported that bookings for summer flights were lower than the same point last year because of uncertainty caused by the conflict in the Middle East.

It posted a half-year pre-tax loss of £552 million, compared with a loss of £401m a year ago.

Credits: The Herald

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