Sin­ga­pore Air seeks North­east Asia deals af­ter col­lapsed Jeju talks

The Pak Banker - - BUSINESS -

SIN­GA­PORE: Sin­ga­pore Air­lines Ltd (SIA) is con­tin­u­ing to search for growth through part­ner­ships and in­vest­ment in North­east Asia, two peo­ple close to the com­pany told Reuters, days af­ter tie-up talks col­lapsed with South Korea bud­get car­rier Jeju Air.

The air­line, which tried to buy into China Eastern Air­lines Corp Ltd in 2008, is par­tic­u­larly look­ing for a way to ac­cess China's vast do­mes­tic flights mar­ket, the peo­ple said. SIA has put money into mar­kets such as In­dia and Aus­tralia to boost in­come as growth in pas­sen­ger num­bers lan­guishes far be­low the global rate, partly due to Gulf car­ri­ers of­fer­ing an in­creas­ing num­ber of in­di­rect flights at lower prices. Its latest deal floun­dered on Thurs­day, with SIA say­ing it could not reach agree­ment with Jeju in what would have been its first in­vest­ment in the re­gion. It may now turn its at­ten­tion to Chi­nese tar­gets af­ter Delta Air Lines Inc bought 3.55 per­cent of China Eastern in July, an­a­lysts said.

"Not get­ting Jeju Air is dis­ap­point­ing but, while South Korea and the North­east Asian low-cost mar­ket have po­ten­tial, the big­ger prob­lem is China," said one of the peo­ple, who were not au­tho­rised to speak with media and so de­clined to be iden­ti­fied. "SIA needs a Chi­nese part­ner who can give them ac­cess to the do­mes­tic mar­ket, and feed traf­fic onto the SIA net­work. They don't even have do­mes­tic code­share part­ner­ships." The air­line told Reuters it was open to strate­gic in­vest­ment but de­clined to elab­o­rate on any po­ten­tial tar­gets or deals.

Chief Ex­ec­u­tive Goh Choon Phong, in of­fice since Jan­uary 2011, has so far sought growth by in­vest­ing in Vir­gin Aus­tralia Hold­ings Ltd and In­dian start-up Vis­tara, launch­ing long-haul bud­get air­line Scoot, and be­com­ing ma­jor­ity owner of short-haul car­rier Tiger Air­ways Hold­ings Ltd. But SIA pas­sen­ger num­bers have fallen 2 per­cent from 2007 while global traf­fic has risen 4.8 per­cent each year in the in­terim, showed In­ter­na­tional Air Trans­port As­so­ci­a­tion data.

"Com­peti­tors have upped their game and have suc­cess­fully en­croached into SIA's mar­kets," May­bank Kim Eng an­a­lysts said in a re­cent re­port. "Fur­ther­more, the emer­gence of low cost car­ri­ers such as AirAsia Bhd, (Cebu Air Inc sub­sidiary) Cebu Pa­cific and Lion Air has per­ma­nently changed the dy­nam­ics of the in­dus­try." The air­line is al­ready in China, fly­ing to 11 des­ti­na­tions with sub­sidiary SilkAir.

Code­shar­ing with a lo­cal car­rier would al­low the pair to sell tick­ets for in­di­rect flights to the part­ner's des­ti­na­tions, while deeper co­op­er­a­tion in­clud­ing in­vest­ment could al­low them to co­or­di­nate flight times. Nei­ther ar­range­ment is com­mon in China. "SIA and SilkAir can fly di­rectly to sev­eral points in China, but they can't cover ev­ery city," said Sin­ga­pore-based an­a­lyst Bren­dan So­bie at avi­a­tion con­sul­tancy CAPA. "The Chi­nese do­mes­tic mar­ket is a big gap in SIA's net­work." An­a­lysts point to China Air Ltd as a fit­ting part­ner for SIA as both are mem­bers of the Star Al­liance group of air­lines which co­op­er­ate with pro­cesses such as check-in, fre­quent-flyer pro­grammes, and fa­cil­i­ties like busi­ness lounges.

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