By Scott Murdoch and Christine Chen

SYDNEY (Reuters) -Virgin Australia shares surged 11.4% in its trading debut on Tuesday, lifting its market capitalisation to A$2.58 billion ($1.7 billion), with dealmakers hopeful it will revive Australia's subdued listings market.

The airline's strong debut came as oil prices fell more than 5% after Israel agreed to U.S. President Donald Trump's proposal for a ceasefire with Iran, alleviating worries of supply disruptions in the Middle East. Some flights were also restored.

The airline sold 236.2 million shares at A$2.90 each, valuing it at A$2.32 billion on a fully diluted basis.

The stock closed its debut session at A$3.23, outpacing a 1.1% gain in the Australian benchmark S&P/ASX200.

Virgin Australia's scheduled services to Doha, which are operated by Qatar Airways, are expected to resume on Tuesday with delays following the reopening of Qatar airspace, a spokesperson for the company said in a statement.

CEO Dave Emerson told domestic media he was not overly concerned about the impact of the conflict due to the airline's focus on the Australian market, which makes up 90% of its business.

"With the potential de-escalation in the Middle East, that sort of puts some downward pressure on the oil price, which is slightly positive as well for the airline," said Joseph Koh, a portfolio manager at Blackwattle Investment Partners which bought Virgin stock.

Virgin pared back its international business to be mainly a domestic airline under Bain's ownership. Earlier in June, it resumed long-haul flights to Doha through a lease agreement with state-owned Qatar Airways.

Shares of Qantas , the main rival to Virgin Australia, closed 2.4% higher on Tuesday following a drop in global oil prices, after Iran took no action to disrupt oil and gas tanker traffic through the Strait of Hormuz.

FUEL HEDGING

Virgin disclosed in an exchange filing that it has hedged 98% of its anticipated fuel usage in Brent crude oil at a cap of $70 per barrel for the first half of 2026. It has hedged 86% of its anticipated fuel usage at the same price in the second half.

Koh said that if competition remains rational, a rise in oil prices would be passed onto end users. "...in the near term, I think the market tends to just take it as a sentiment driver and lower oil prices are positive for Virgin, so it's helpful as well today."

Virgin, which is Australia's second-largest airline by market share after Qantas Airways, was delisted in 2020 after private equity giant Bain Capital rescued it from administration.