Is AIR N.Z. FPO NZ a better investment than Qantas Airways Limited? 

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 ZealandVirgin 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.

BRAND NEW! Our Top Dividend Stock for 2016

Our resident dividend expert names his Top Dividend Share for 2016. Not only are the shares dirt cheap, the company is trading on a 5.6% fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required!

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.