By Jenny Ruth
Wednesday 2nd February 2011
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Air New Zealand's $145 million (NZ$190 million) purchase of a 14.9% stake in Virgin Blue is a good move, "although sceptics would argue that the firm's previous investment in Ansett proved to be a disaster," says Nachiket Moghe, an analyst at Aegis Equities Research, which is owned by Morningstar.
Air New Zealand views the price as attractive and thinks Virgin Blue has sound prospects and the leadership change is likely to be beneficial for the company and the alliance as well, Moghe says.
John Borghetti, a former Qantas senior executive, became Virgin Blue's chief executive last May.
The Virgin Blue stake also gives Air New Zealand an economic interest and exposure to the faster growing Australian market and will allow the pair to counter the growing dominance of Qantas in the trans-Tasman region, Moghe says.
The pair are also likely to explore long-haul opportunities and the trans-Pacific route has been singled out as the one having the greatest potential for collaboration, he says.
He expects Air New Zealand's earnings to accelerate this year on the back of strong demand and higher yields but says unfavourable macroeconomic fundamentals and excess capacity is likely to pressurise yields in the medium term.
The stock is more suited to the risk-tolerant investor, given its negative correlation to oil prices and the US dollar.
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