** Shares of airliner Virgin Australia VGN.AX rise as much as 2.8% to A$3.30, their highest level since June 27

** UBS initiates coverage of stock with "Buy" rating and 12-month price target of A$3.90 per share

** Sees compelling earnings outlook into FY26 with relatively stable fares, falling fuel expenses, and transformation benefits

** UBS says VGN has simplified its portfolio and strategy since pre-Covid

** Says VGN is more likable now compared with when it was previously listed with no more loss-making long haul international, among others

** UBS forecasts 16% FY26 EPS growth, driven by airline revenue growth of 4.8%, margin expansion from lower fuel and some transformation benefits retained

** VGN gained 2.9%, as of last close, since its return to ASX-listing on June 24

(Reporting by Sherin Sunny in Bengaluru)

((Sherin.Sunny@thomsonreuters.com))