Daily ShareChat: Air New Zealand

By Jenny Ruth

Monday 10th May 2010

Air New Zealand's proposed trans-Tasman alliance with Virgin Blue, which would exclude domestic-only travel within Australia and New Zealand, "represents an alluring proposal for Air New Zealand shareholders," says Craigs Investment Partners analyst Geoff Zame.

The proposal, including code sharing, revenue sharing, lounge co-operation and reciprocal frequent flyer benefits, would offer customers better connectivity and improved frequency.

"Air New Zealand and Virgin combined have around 53% of trans-Tasman capacity (37% and 16% respectively) and market share," Zame says.

Qantas/Jetstar has 30%, Emirates 14% while the balance is held by Aerolineas, Chile and Brunei.

The proposal requires the approval of the New Zealand Ministry of Transport and the Australian Competition and Consumer Commission which are expected to take about six months to reach a decision.

"The ACCC may authorise anti-competitive arrangements if the public benefit outweighs the public detriment," Zame says. While the proposal won't result in an Air New Zealand/Virgin monopoly on any major routes, unlike the failed Air New Zealand/Qantas proposal in 2006, approval isn't a fait accompli, he says.

"Given the uncertainty, we have left forecasts unchanged," says Zame, but adds the benefits would boost Air New Zealand's earnings-per-share in the second half of 2011 by about 10%.

BROKER CALL: buy.

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