The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has a number of airlines for investors to choose from, which include AIR N.Z. FPO NZ (ASX: AIZ), better known as Air New Zealand, Virgin Australia Holdings Ltd (ASX: VAH), Qantas Airways Limited (ASX: QAN), and Regional Express Holdings Ltd (ASX: REX).
Because of the sustained low oil prices, airlines have been given a big boost in the last 12 months as input costs lowered allowing for margin expansion that has helped increase overall profitability. Many market commentators now expect oil to stay at its low levels for a long time to come, which is great news for the airlines and equally so for their investors.
In the last 12 months, Qantas Airways shares have risen by over 30%, whereas the shares of Air New Zealand are up less than 1% during the same period, having been up by just over 22% just around a month ago when the market volatility started to intensify. I feel this could mean that Air New Zealand shares are due for a rebound in the next few months.
Although airlines can be risky investments, Air New Zealand is producing results that make it appealing. According to a press release from the company, during December it carried 1,514,000 passengers, an increase of 5.8% from the same period last year. Additionally, the revenue passenger kilometres were 18.1% higher.
Its short haul segment rose 6.8%, but its international routes saw the biggest demand increases. On the Americas/UK routes demand increased almost 22%, and the Asia/Japan/Singapore routes increased 41% year over year.
Much like the Australian dollar, the New Zealand dollar has depreciated against most of the world's major currencies. I feel this has made both Australia and New Zealand even more attractive tourism destinations, at a time when there may have never been a better time to fly. Add in the fact that China's middle class is growing rapidly and has a taste for travel, and I feel we have a great environment for Air New Zealand to work in.
Another bonus for investors in Air New Zealand is that due to the market sell-off the shares now offer a generous dividend yield.
Foolish takeaway
I think Qantas Airways is also a great company to be invested in, but I believe the share price gains on offer will be far greater with Air New Zealand because of the recent sell-off. Whilst oil prices remain low, the company should continue to produce great results, but if the oil price were to spike suddenly, the business could be put under a lot of pressure. For this reason I believe it is advisable for shareholders to keep a close eye on the oil price.
