FROM SKY NEWS - REX AND SINGAPORE AIRLINES HAVE BEEN IN TALKS FOR TWO WEEKS AND ABOUT TO ANNOUNCE ONCARRIAGE AGREEMENT----
From correspondents in Singapore September 07, 2002
SINGAPORE Airlines (SIA) is in talks with an Australian domestic airline, a Singapore report said today.
The report has fuelled speculation that the Singapore carrier is actively seeking a slice of Australian domestic travel.
Discussions on an "interline" agreement with SIA began about a fortnight ago, Armon Hicks, a spokesman for Australia's newest airline Regional Express (Rex), told the Straits Times.
The deal, if it goes through, would allow passengers landing at any of the five Australian cities now served by SIA to go on to 31 other destinations in the country without having to check in their bags again or make separate bookings.
An SIA spokesman treated the latest talk of an Australian venture the same as recent market rumours, saying the airline will "rule nothing in or out. We are leaving our options open with regards to the Australian domestic market".
Among various market rumours has been a suggestion that SIA was considering a proposal to revive Australia's collapsed Ansett airline.
Sydney Airports Corp Ltd spokesman Peter Gibbs told reporters that an SIA evaluation team had inspected the former Ansett terminal at Sydney Airport.
But Ansett lawyer Leon Zwier said this week there had been no discussion with Singapore Airlines.
"We're not sitting down to talks ... we're not doing deals with Ansett names or parts, although if they want to talk to us they would be welcome."
Ansett provided a feeder service for SIA passengers before its sensational collapse last year.
Since Ansett's demise, the Star Alliance group of airlines, including SIA, has lacked a presence in the Australian domestic market, which analysts estimate is costing the Singapore operation hundreds of millions of dollars a year.
Analysts have put the total value of the Australian domestic airline market at nearly 10 billion Singapore dollars ($A10.6 billion).
Qantas has now picked up about 80 per cent of the Australian domestic market, with British tycoon Richard Branson's cut-price carrier Virgin Blue picking up the remainder.
Aviation analysts say that even if SIA seals an agreement with Rex it would not fill the vacuum left by Ansett, as Rex has only two per cent of the market and does not fly key routes such as Melbourne-Sydney.
Rex spokesman Hicks said the new carrier was also in talks with both Qantas and Virgin Blue.
"Aviation analysts say that even if SIA seals an agreement with Rex it would not fill the vacuum left by Ansett, as Rex has only two per cent of the market and does not fly key routes such as Melbourne-Sydney. " NOT YET
I am certain REX will succeed on the sectors they are flying. The only doubt is ownership. Me thinks current owners are looking for a quick return. Whether that means a float or sale to another party is yet to be seen.
/07 06:00 Singapore Air May Regain Access to Australian Market (Update1) By Dudley White
Sydney, Sept. 7 (Bloomberg) -- Singapore Airlines Ltd., whose Australian strategy collapsed with Ansett Holdings Ltd., may form an alliance with Australia's newest airline, enabling its passengers to fly to more Australian cities on one ticket.
Regional Express, formed last month by the combination of Hazelton Airlines Ltd. and Kendell Airlines Pty., is also talking with Qantas Airways Ltd. and Virgin Blue Airlines Pty. about linking flights, spokesman Armon Hicks said.
"We'd like to be able to offer our passengers a system where we can book them on a single ticket all the way through,'' Hicks said.
Singapore Airlines flies to five Australian cities. It lost its toehold in Australia's A$10 billion ($5.4 billion) domestic market when Ansett failed a year ago. Asia's most profitable carrier owned a quarter of Ansett's parent, Air New Zealand Ltd., a stake that was diluted when New Zealand bailed the carrier out.
Singapore Airlines lost money on its investments in Air New Zealand and Virgin Atlantic Airways, in which it has a 49 percent stake, in the year ended March 31. It wrote down S$267 million ($152 million) from its share of Ansett's failure and lost S$45.7 million from associated companies, including Virgin Atlantic.
For the year, profit fell 61 percent to S$632 million.
Two's Company . . .
Qantas and Virgin Blue, owned by British entrepreneur Richard Branson, have shared Australia's domestic aviation market since Ansett's collapse. Qantas holds about 80 percent of the market, with Virgin holding the remainder.
In July, Sydney Airports Corp. said it has held talks with Singapore Airlines about access to Australia's largest airport, which may indicate a plan to start a rival for Qantas and Virgin Blue.
Shares of Singapore Airlines have fallen 3.6 percent this year, outperforming the Singapore Straits Times Index, which fell 11.2 percent.
Such an arrangement with Singapore Airlines would give Regional Express a link to international flights. Regional Express flies to 31 mostly rural destinations in New South Wales, Victoria, South Australia and Tasmania, according to the company's Web site.
Hazelton and Kendell were the regional operations of failed airline Ansett Holdings Ltd., previously Australia's No. 2 carrier behind Qantas. The two companies were acquired by Australiawide Airlines Pty. and then renamed Regional Express.
Regional Airlines biggest planes are 36-seaters, the Straits Times newspaper reported today.
It sure is an obvious link up and if you look back when all three airlines (REX, Alliance and Skywest) were launched all three said they were looking at an international link. Even blind freddy could see SIA would be the one.
Here's my prediction of what role each regional will play when SIA start their domestic operation.
Skywest; They continue pretty much the same as when Ansett were flying. However they will operate 2-3 F100s on regional routes in WA, that were once operated by Ansett BA146s.
Alliance; They will operate a small fleet (2-4) E120s and around 10 F100's, management have already signed off on the 4 extra, with the first due to ferry into BNE very soon. They will operate the two class F100's on primary leisure routes from both SYD and BNE. They will go head-to-head with the 717 and the 146s operated by Qantaslink. They small fleet of E120s will compete with Qantaslink on regional routes in QLD that need/support two airlines. ie BNE-GLA and BNE-EMD. Alliance will become a "mini" East-West".
REX; They will continue to expand their regional operations in NSW, VIC, TAS and SA. They will become "the country airline" serving the needs of rural Australia (well at least in NSW,VIC and SA). In time (2-3 years) they will operate an all Saab fleet and will have a sizeable share of the regional market in Southern Australia.
It may appear that I have shown favouritism to Alliance, I have in a way but only because they have the structure (ie HCAOC with jets)in place and can expand this jet operation quickly without the hazzle of waiting on CASA. I have been told Alliance would like to add more jet routes but only having 2 F100s is holding them back. The current 2 F100s are very busy operating the BNE-ROK, BNE-TVL and BNE-NLK-SYD RPT routes along with the TVL-CENT charter.
What began as a casual invitation to hear a proposed sale of two modest Ansett subsidiaries became a determined move by eight Singaporeans to help an Australian consortium acquire them and move into the Australian domestic flight market.
Now the eight own the largest single block of shares in the Australian group which owns the Regional Express airline.
Offering some 1,300 flights to 30 airports a week, Rex now has to prove that it can compete with the titans of Qantas and Virgin Blue.
With airlines reeling from drastically reduced passenger traffic and massively higher insurance premiums in the aftermath of the terrorist attacks on the United States last September, why would eight Singaporeans sink millions into two money-losing domestic carriers in Australia?
For the entrepreneurial eight, the real question was: 'Why not?'
In an interview with Sunday Review, the group's leaders told a fascinating tale of how chance, trust, risk-taking and nimbleness combined to lead them to do aerial battle with arguably the region's mightiest airline - Qantas - in its home skies.
Together, the Singaporeans pumped in enough funds to fuel the ambition of an Australian consortium to buy Kendell Airlines and Hazelton Airlines and merge them into the country's newest domestic carrier, Regional Express, or Rex for short.
For their money, the Singaporeans were alloted more than 30 per cent of the shares - the largest single block - of the consortium, Australiawide Airlines, and two seats on the board of seven directors, two of whom were from management.
It began around the middle of this year with a casual invitation to Mr Lim Kim Hai, 45, to drop by and listen to a banker talk about the proposed sale of Kendell and Hazelton.
These were two subsidiaries of Australia's second biggest domestic airline, the Air New Zealand-owned Ansett, which had crashlanded with A$3.5 billion (S$3.3 billion) worth of debt in September last year.
It was not even a scheduled presentation as the banker was merely passing through Singapore.
Mr Lim, a former civil servant turned business consultant, went, listened and set it aside in his mind.
While he was on holiday in Malaysia, a long-time friend, Mr Lee Thian Soo, 47, whom he had mentioned the sale to, called to ask him what he was doing about it.
The affable Mr Lee, who started working life as a Straits Times journalist and then went into marketing marine oil and gas products before switching to trading aircraft, had been helping friends to manage their funds, and he wanted to see if the sale was an opportunity worth pursuing.
They decided to go to Australia to talk to the parties involved. By then, it was already August and the administrators of Kendell and Hazelton were pushing for a sale.
The two Singaporeans started talking to the Australiawide Airlines consortium and asked to attend a shareholders' meeting.
Within the space of three days, as their examination of the assets on offer progressed, they went from merely curious to negotiating the extent of their possible participation in the consortium.
While others saw the A$3.5 million the two airlines were bleeding each month while under the care of administrators, Mr Lee and Mr Lim saw something else: an opportunity.
Their first move was to decide who to invite on board. Said the soft-spoken Mr Lim: 'I had no difficulty finding co-investors. I had developed a relationship with these people and they trust my judgment.'
Trust also came into the picture when Mr Lee and Mr Lim met the leaders of the Australiawide consortium.
They felt comfortable with their potential partners and confident that the forecasts they were shown were professional and reasonable.
This was important: had they felt at any time they were being taken for a ride, they would have walked out the door.
The Singapore investors were also convinced that officialdom was genuinely interested in giving their consortium a decent chance of making their proposed operation a success, thereby securing jobs and ensuring small towns would continue to be connected by the Kendell and Hazelton air bridge.
Said Mr Lee: 'The consortium was getting almost daily calls from high-ranking government officials checking on how the negotiations were going.
'In the end, Australiawide Airlines received several concessions on labour, tax and other issues without which the fledgling operation would have had a hard time getting off the ground.'
He declined to go into detail. But observers noted, among other things, that though the Australian unions are notoriously retrenchment-averse, the total staff for rex is a trim 620 people instead of the 1,000 people who used to work for Kendell and Hazelton combined.
While some of the Australian investors in the Australiawide Airlines consortium were from the airline industry, the Singapore investors came from other backgrounds.
For example, Mr Lim was an electronics engineer by training and worked in the Defence Ministry before going into business.
But their lack of knowledge on how to run an airline, even a relatively small one like rex, did not faze them. What they looked out for were 'proxy' indicators to give them an idea of the potential of rex.
For example, they checked how Kendell and Hazelton did before being taken over by Ansett, and later the administrators, and learned that both the 30-year-old airlines had been profitable.
They talked to staff and customers and found that the Australians had a strong sense of loyalty and love for the underdog - qualities which translated into family and friends giving business to the company their relatives and chums worked for.
They checked the service and was pleased to find unusual touches like hot meals for the domestic flights, sheepskin-covered seats, and a crew so friendly that the captain would greet passengers at the door as they embarked and similarly bid farewell as they left the plane.
Also, they looked at the propeller-driven aircraft and found them in good condition and ideal for the short-haul services offered. And by keeping to just two types of planes, 21 36-seater Saab 340 and seven smaller 19-seater Metro 23 aircraft, the new airline would lower maintenance costs.
One of the most persuasive 'proxies' was the 'load factor' or the amount of revenue space filled. All rex needed to break even was a small 50 per cent load factor. And this seemed eminently achievable given the modest slice of the business - which some observers put at around 10 per cent - the small player wanted from a lucrative domestic aviation market estimated to be worth about A$2 billion.
There were many other signs that signalled a positive future for the consortium but time was running short. And so was the sum of money pledged. The Australiawide Airlines consortium needed to shore up its position so that it could put in a serious bid for Kendell and Hazelton.
Having assessed the opportunity, the Singapore investors decided to join the consortium. But since they were the last and crucial entrants, they could negotiate the cost of their participation from a position of strength.
Mr Lee declined to say just how much money they eventually agreed to commit for their more than 30 per cent share, but added: 'We were very pleased with what we had to put in and what we could be getting out in return.'
Once they were satisfied with the risk-to-returns ratio, Mr Lee and Mr Lim rounded up the acceptances from the other Singapore investors.
They would not say who these were other than to describe them as 'quietly successful' people who shun the headlines.
More significant, they were people with considerable financial clout. Because they had no boards to persuade, shareholders' meetings to call, or partners to consult, the individuals could decide on the spot: yea or nay.
And a new domestic airline was born in Australia.
Rex is no tyrannosaurus: Virgin Blue operates 23 Boeing 737 jet aircraft on domestic routes, while Qantas uses about 130 Boeing 767, B747, B737, B717 and Bae 146 aircraft on its domestic and regional routes.
Observers say that given the size of rex, the next six months will be critical in determining how much of a dent the new airline makes on the Australian aviation scene.
'Its future will depend largely on reaching some accommodation with either Qantas or another large airline,' Mr Peter Harbison, managing director of the Centre for Asia-Pacific Aviation, told Sunday Review from Sydney. 'This is because rex cannot afford to compete head to head with a major airline like Qantas on small routes.'
Moreover, 'a large minority of the passengers want to connect from and to Sydney with inter-state routes'.
Apart from Qantas, the only other large Australian carrier is Virgin Blue, owned equally by Richard Branson's Virgin Group and Australia's biggest maritime cargo handler, Patrick Corp.
Currently, rex competes on six routes with the incumbent players, Qantas and Virgin Blue, Sydney-based spokesman Armon Hicks said.
After the collapse of Ansett last year, both Qantas and newcomer Virgin Blue moved to fill the void left by the former No. 2 carrier. Qantas now holds about 80 per cent of the Australian travel market with most of the other passengers going to Virgin Blue.
Headquartered in Sydney with its main operational, engineering and maintenance base in Wagga Wagga in New South Wales, Rex launched its new schedule this month, plying routes in NSW, Victoria, South Australia and Tasmania. It now offers 1,300 flights to 30 airports a week - an increase of about 30 per cent from previous levels.
Besides serving the capital cities of Adelaide, Canberra, Melbourne and Sydney, it flies to regional centres such as Wagga Wagga, Orange, Coffs Harbour and Broken Hill.
Since its official launch on Aug 6 when the airline said it was aiming to fill 52 per cent of its seats, the carrier has seen a 'significant improvement in bookings', said Mr Hicks, without disclosing the passenger load levels.
But, he added, passengers' response to the new airline has been so overwhelming that it announced on Aug 12, barely a week after its launch, that it will double its call centre capacity.
It also launched an Internet site where passengers can book their tickets online.
But even as the airline sees encouraging signs of growth, some of its critics have started a death-watch.
The vice-president of the Aircraft Owners and Pilots Association, Mr Bill Hamilton, told Australia's Canberra Times that he doubts Rex will make it past Christmas.
'I sincerely hope I'm wrong, but my personal opinion is that they will be unlikely to succeed because there have been 11 airlines, big and small, go under in the last two years and Rex will face all the same fixed costs as those other airlines,' he said.
'It's all largely factors beyond their control, like the situation in the bush and fuel and airport costs.'
However, aviation consultant Harbison said Rex was different from the higher profile trunk route carriers which have failed.
'This is a regional airline with small turbo-prop aircraft. Its market is predominantly business traffic - characterised by fairly slow growth and not very responsive to lower prices - to and from Sydney with some other routes,' he said.
There is one other card it has yet to play: interline agreements with an international airline. This will boost its attractiveness, as its passengers will be able to buy just one ticket to go from a regional centre like Wagga Wagga to a big town like Sydney and out of Australia.
Rex said it had been discussing such an agreement with Singapore Airlines and Qantas. Though Qantas has domestic flights too, the overlap is very small, said rex spokesman Hicks.
He dismissed criticisms of rex as uninformed and inaccurate: 'They haven't seen our business plan, and are unaware of our capital backing. We believe that our business plan is robust and sustainable.'
The leader of the Singapore investors, Mr Lee, had the last word: 'We're not in this for charity.'
(Paul Jansen and Rebecca Lee are with the Straits Times Money desk.)
10sep02 FLEDGLING regional airline Rex has confirmed talks over an "interline" agreement with Singapore Airlines, fuelling speculation about the Asian carrier's interest in entering the Australian domestic market.
The deal, if it goes through, will allow Singapore Airlines passengers landing at any of the five Australian cities to go on to 31 other destinations in the country without having to check in their bags again or make separate bookings.
Discussion over the agreement with Singapore Airlines began about a fortnight ago, Armon Hicks, a spokesman told Singapore's Straits Times.
Rex -- short for Regional Express -- is also in talks with both Qantas and Virgin Blue.
If the deal does go ahead, it will be a major coup for Rex which began its first services last month after being resurrected from the ashes of Hazelton and Kendell airlines.
Rex already has a Singapore connection, being financed by Singaporean businessmen Lim Kim Hai and Lee Thian.
A Singapore Airlines spokesman treated the latest talk of an Australian venture the same as recent market rumours, saying the airline will "rule nothing in or out".
"We are leaving our options open with regards to the Australian domestic market," the spokesman said.
Among various rumours has been a suggestion that Singapore Airlines was considering a proposal to revive Australia's collapsed Ansett airline.
Ansett provided a feeder service for Singapore Airlines passengers before its sensational collapse last year.
Since Ansett's demise, the Star Alliance group of airlines, including Singapore Airlines, has lacked a presence in the domestic market.
Analysts estimate this is costing the Singapore operation hundreds of millions of dollars a year.
Aviation analysts say that even if Singapore Airlines seals an agreement with Rex it would not fill the vacuum left by Ansett, as Rex has only 2 per cent of the market and does not fly key routes such as Melbourne-Sydney.
In other airline news, Qantas' sagging share price has thrown its $200 million retail capital raising into doubt.
Having raised $600 million from institutions just two weeks ago, Qantas yesterday opened the retail component to smaller investors.