Air New Zealand hiked its stake in Virgin Australia by 5 per cent to 19.99 per cent. With the increase, the flag carrier became the second largest shareholder next to parent firm Virgin Group.

To increase its share, Air New Zealand agreed to pay a first payment of $23 million. The full 5 per cent additional stake costs Air New Zealand $32.8 million.

Virgin Australia Chief Executive John Borghetti said the buy-in, which previously was informally discussed, will be confirmed with the Australian Stock Exchange. Air New Zealand Chief Executive Rob Fyfe stressed the airline has no intention of taking over Virgin Australia.

"We believe that this further increase in their shareholding reinforces their confidence in our strategy and the Virgin Australia Group of airlines," a Virgin Australia spokesman said in a statement.

"Our increased investment in Virgin Australia continues Air New Zealand's strategy to develop scale and reach in this region," Mr Fyfe told The Sydney Morning Herald.

Air New Zealand is 75 per cent owned by the New Zealand government. It entered into a commercial alliance with Virgin Australia in January in a bid to compete against Qantas and Jetstar.

Virgin Australia also recently inked a codeshare deal with Delta Air Lines.

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