Reuters
Monday June 3, 4:12 PM (S/Pore)
SIA resurfaces as Australian airline contender
By Sophie Hares
SYDNEY, June 3 (Reuters) - Speculation a third airline plans to muscle in on Australia's domestic aviation market resurfaced on Monday, with industry watchers putting Singapore Airlines at the top of the list of likely contenders.
Keen to bridge the Star Alliance gap left by the collapse of Ansett and secure traffic for international routes, SIA has the infrastructure to cheaply and quickly set up a domestic airline to challenge the dominance of Qantas Airways Ltd
But analysts doubted SIA's enthusiasm for an Australian foray after it backed away from a recapitalisation of former second ranked Ansett and as it struggles to claw back from an economic downturn and the impact of the September 11 attacks.
"I'm sure they're looking at a solution, but whether that's coming in and setting up a whole new carrier, I'm not convinced," said Bruce Low, aviation analyst at ABN AMRO.
"It may be a longer term solution. SIA's been looking at the Aussie market for years, but the whole landscape's changed."
The past year has proved the most turbulent in Australasian aviation history after Air New Zealand-owned Ansett collapsed, as years of mismanagement combined with vicious discounting, soaring costs and sliding Australasian currencies took their toll.
"The demise of Ansett has created a vacuum," SIA chief executive Cheong Choong Kong told a news conference in Shanghai at the weekend.
"We are seeking a solution, but we don't want to do Qantas a favour by announcing publicly our plan."
A senior spokesman for the carrier said he could not provide further details.
TRIGGER POINT
Analysts say OneWorld member Qantas could put further pressure on its bigger rival Star Alliance with plans to take a 25 percent stake in Star member Air NZ, currently 82 percent NZ government owned after a NZ$885 million rescue package.
"There are certain trigger points which might bring it forward, one of which is Qantas' talks with Air NZ," said Ian Thomas from the Centre for Asia Pacific Aviation.
Australian newspapers have reported that Ansett administrators were in talks with a handful of airlines including Dubai-based Emirates [EMAIR.UL] and Hong Kong's Dragon Airlines, to buy some of Ansett's core assets.
Analysts deemed those two carriers unlikely contenders but did not rule out completely a joint venture between SIA and Air NZ, despite the Singaporean carrier being badly burnt by losses on its Air NZ investment.
They point out SIA's has maintained a toehold in the Kiwi carrier with a 4.5 percent stake, down from 25 percent after its shareholding was diluted by the NZ government bailout.
"It doesn't make sense to start from scratch considering the set-up costs," said Seah Hiang Hong, an analyst with Kim Eng Securities in Singapore.
TWO'S COMPANY
Analysts deem the A$10 billion domestic market only big enough for two players, and say any new entrant could struggle to grasp passengers from Qantas, which dominates 85 percent of the market, and Virgin Blue [VA.UL] with the remainder.
"Virgin is building market share. If ever you wanted to establish yourself, now's the time as the longer you leave it the more market share Virgin will get," said Thomas.
Richard Branson's Virgin Blue remains the only Australian player the Star Alliance could possibly team up with, but the discount airline ruled out such a tie.
"We're not interested in membership of Star Alliance, nor would we probably be offered it," Brett Godfrey, Virgin Blue's chief executive told reporters in Brisbane.
"I've always believed there will be a third entrant, the question is how serious that third entrant will be. I believe there is room for a niche player."
Shares in Qantas closed down eight cents, or 1.75 percent, at A$4.49, while SIA shares were 40 cents up at S$13.10.
(Additional reporting by Rob Schutze in Brisbane, Edwin Khoo in Singapore)