Chinese airlines are tipped to be the high-priced front runners to swoop on a stake in Virgin Australia, which would allow them direct entry for the first time to the Australian domestic travel market.

Air New Zealand confirmed this week it is considering a partial or full sale of its 25.9 percent shareholding in Virgin, leaving fellow major shareholders Singapore Airlines and Etihad to purchase the stake or face a new competitor.

"No-one on the Australian ASX is going to want to buy up to 25 percent of an airline dominated by Singapore and Etihad. There is just no benefit, they'd never get control and would always be a minor investor," aviation analyst and founder of Strategic Aviation solutions Neil Hansford said yesterday.

"If Singapore and Etihad don't buy up the parcel the front runners are the big Chinese carriers, China Southern, China Eastern or China Air," Mr Hansford said.

Mr Hansford said there were already about 11 Chinese airlines flying into Australia; their next strategic step would be finding a way to fly their customers domestically.

"A stake in Virgin Australia would give them that," he said.

Etihad owns a 25.1 percent stake in Virgin, while Singapore Airlines owns 22 percent. The only other major shareholder is founder Richard Branson's Virgin Group, which has 10 percent.

Spokespeople for Etihad, Singapore and Virgin declined to comment on the buyout speculation. However, Etihad chief James Hogan, talking at a business lunch in Melbourne yesterday, appeared lukewarm on a bigger share, describing Etihad as a "partner, not a predator".

Regardless of the eventual purchaser should Air New Zealand sell up, the impact on the national carrier, Qantas, is expected to be positive, analysts said.

According to Morgan Stanley analyst Nick Markiewicz, the disposal by Air New Zealand could boost Qantas's competitive edge.

"The future ownership structure of Virgin Australia still remains unclear and a risk. However, we think ultimately a potential Air New Zealand selldown means Qantas's largest, most leveraged and most cash flow-constrained competitor has one less source of capital," Mr Markiewicz said.

He has a price target of AU$5.40 a share on Qantas, which closed up 2.5 percent yesterday at AU$4.07. Virgin shares added 7.4 percent to 36.5c.

Qantas's greater fuel hedging commitment than Virgin is also expected to give it an edge over its major rival.

As of January, Qantas had hedged 95 percent of its fuel requirements for the year, allowing it to cash in on cheaper oil prices. Virgin operates a tiered hedging policy that hands it short-term certainty amid price volatility but less support in times of sustained lower oil prices.

Qantas also yesterday reported a 10.5 percent increase in passengers for February, compared with the same month a year earlier. The strong increase included rises of 6.4 percent in Qantas domestic passengers and 7.5 percent in Jetstar domestic.

Qantas international passengers were up 11.3 percent and Jetstar international ­increased 27.4 percent.

In another blow for Virgin, global ratings agency Standard & Poor's late yesterday revised its outlook on the airline from stable to negative, citing uncertainty over its near-term funding avenues and future ownership structure.