** Morningstar says Virgin Australia VGN.AX has taken a modest domestic capacity share from Qantas in the first quarter

** The airline on Friday said that domestic capacity grew 5% in 1Q26, sees 4% growth in 1H26

** Morningstar increases FY26 underlying EBIT forecast by 12% to A$745 million ($486.41 million)

** Investment research firm also marginally hikes fair value estimate to A$2.9 from A$2.8

** Morningstar sees around 3% growth in revenue per available seat kilometre (RASK), but sees pricing to come under competitive pressure, especially from Qantas, as fuel costs decline over the coming years

** Also flags that Virgin's stock screen as "expensive"; adds market is pricing in a "continuation of strong margin growth", which could be "unsustainable"

** Virgin shares gain nearly 1% since relisting in June this year, as of last close

($1 = 1.5316 Australian dollars)

(Reporting by Nikita Maria Jino in Bengaluru)

((Nikita.Jino@thomsonreuters.com;))