Daily ShareChat: Virgin Blue

By Jenny Ruth

Tuesday 14th June 2011

Virgin Blue's code-share agreement with Singapore Airlines should deliver it a greater share of the business market, "which VBA is clearly yearning for," says Nachiket Moghe, an analyst at Aegis Equities Research which is owned by Morningstar.

"It also provides momentum to its loyalty program. We think yields could remain firm, given the backdrop of high load factor and subdued capacity growth," Moghe says.

In addition, companies are unlikely to reverse fuel surcharges implemented over the past few months, given elevated oil prices. The potential withdrawal of Tiger could spark a rise in airline prices.

Air New Zealand owns 15% of VBA and the pair plan a joint network across the Tasman starting November. Virgin also has alliances with Etihad and Delta.

"The partnership with Singapore Airlines provides VBA with exposure to the all-important Asian market in terms of connectivity," Moghe says.

Singapore Airlines and VBA will offer reciprocal frequent flyer benefits and the two companies intend to engage in joint sales, marketing and distribution activities.

"VBA has ended up creating a virtual airline that covers all major global destinations."

Still, Moghe doesn't favour airline stocks. "Airline stocks are only suitable for trading oriented investors who understand their high and specific risks," he says.

Recommendation: Avoid

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