21 Jan 2011

Air NZ acquires stake in Virgin Blue

6:11 pm on 21 January 2011

Air New Zealand has cemented its relationship with the Australia's Virgin Blue.

The national carrier has bought a 14.99% stake in the low-cost airline, for $189 million. Virgin Blue is the second biggest airline in the Australian market.

Richard Branson's Virgin Group, which is based in Britain, has a 26% shareholding.

Air New Zealand chief executive Rob Fyfe says the airline has no intention of buying a higher stake in Virgin Blue and will not seek any seats on its board for at least the next six months.

Mr Fyfe says the purchase will be funded using existing cash and is part of the airline's strategy to grow its business in the Australian domestic market.

Air New Zealand and Virgin Blue together have more than half of the Tasman market. In December last year, they obtained regulatory approval for a Tasman alliance.

Mr Fyfe says customers in New Zealand and Australia will not notice any immediate difference following the share purchase.

However, he says the alliance between the airlines will mean a greater number of destinations on offer.

The alliance takes effect from July this year.

Shares in Air New Zealand fell 2 cents to $1.42 by the close of trade on Friday.

Prices likely to stay competitive

Tourism operators say competition on the trans-Tasman route is fierce and fares are unlikely to rise.

House of Travel retail director Brent Thomas believes prices will stay competitive with at least eight carriers servicing the route.

Mr Thomas says the alliance is likely to mean an improved flight timetable and greater access to places beyond the east coast of Australia.

Tourism Industry Association chief Tim Cossar says that with more than 1 million passengers flying each way across the Tasman every year, Air New Zealand can not ignore the Australian market.

Aviation consultant David Stone says Air New Zealand and Virgin Blue wanted the alliance because it would allow them to compete effectively with Qantas and Jetstar.