SIA and Qantas to Merge?

[Thermal Image]

For real or just a story to placate SIA after telling them No to more flights?

From Thursday 23 Jun issue of Business Times Singapore:
(Free access from 6pm local time or 1000hrs GMT)

http://business-times.asia1.com.sg/sub/news/story/0,4574,159958,00.html?

Business Times - 23 Jun 2005

Aussie PM rekindles speculation of SIA merger

By VEN SREENIVASAN

(SINGAPORE) Rumours of a possible Qantas-Singapore Airlines merger have been given a new lease on life by Australian Prime Minister John Howard.

Mr Howard told reporters in Sydney yesterday that he spoke with Singapore Prime Minister Lee Hsien Loong by phone last week and they touched on whether SIA and Qantas could remain 'as separate companies for an indefinite period of time' as the global airline industry consolidates.

Asked whether the Australian government has made a final decision on allowing SIA on to the lucrative Sydney-Los Angeles route, Mr Howard said: 'This is a decision that has to be taken in the context of all of those circumstances, but the idea that we have shut the door permanently on some kind of accommodation in relation to Singapore Airlines is not correct.'

He then added: 'But it is true that you can't look at that issue in isolation from consideration of whether the companies might come together in the future.'

This seems to be an obvious reference to remarks made a few days ago by Australian Trade Minister Mark Vaile.

Speaking to The Australian newspaper, Mr Vaile said of a possible merger: 'My view is, if (a merger) could occur, then the government should not rule that out. Quite frankly, that is the direction international aviation is moving in.'

All this comes as the Australian government continues to study the impact of allowing SIA on to the trans-Pacific route.

Mr Howard yesterday hinted that a decision could be made in the next few months.

'We have never at any stage said finally and definitely no to that,' he said. 'The issue is certainly not going to be the subject of a decision in the next few weeks - but the whole question has not been finally taken off the table either.'

After agreeing to a roadmap to finalise its Open Skies Agreement with Singapore earlier this year, Australia has been sending mixed signals amid a split in domestic opinion on the matter.

Last week, Australian media reports suggested that Transport Minister John Anderson, who is also Deputy Prime Minister, had rejected Singapore's request to allow SIA on to the route. But this was quickly denied by Mr Howard's office, which said no decision had been made.

Then came media reports that the issue had been put on ice because of strong opposition from Qantas and other groups that fear jobs losses and economic dislocation if a new and powerful player like SIA enters the scene.

The latest signs suggest the Australian government is still considering granting SIA access to the route as part of a review of aviation policy and that it could announce a decision this year - perhaps even during the current quarter.

The 14-hour hop from Sydney to Los Angeles is now a duopoly controlled by Qantas and American carrier United Airlines.

Qantas carries almost three-quarters of the passengers on the route and derives between 10 and 15 per cent of its profit from it. Studies suggest it also charges a significant fare premium compared with other routes of similar length.

While Australia's tourism authorities and the business community would like to see more competition and lower fares on the route, the issue has become a political hot potato for the Howard government as Qantas and its unions warn of big job losses and economic dislocation in the local aviation sector.

Meanwhile, the remarks about an SIA-Qantas merger seem to be adding a new flavour to the whole issue.

For its part, SIA has been noticeably cool towards any suggestion of a merger with its rival. Its spokesman, Stephen Forshaw, yesterday described a merger as 'an interesting idea'.

'In theory, consolidation and rationalisation in the airline industry will be logical,' he said. 'But the regulatory framework in which the international airline industry operates makes a merger practically impossible at the moment.'

Analysts point out that SIA and Qantas are proud, successful and profitable global players with their own corporate cultures, which would make a merger difficult.

Indeed, some industry observers wonder whether the whole 'merger'' suggestion is a delay tactic by the Australian Cabinet to mask its failure to decide on the whole Open Skies issue.

'It may be an attempt to distract,' said a Singapore-based aviation analyst.

The issue has also split the Australian cabinet, with Mr Vaile, Treasurer Peter Costello and Tourism Minister Fran Bailey apparently favouring liberalisation, and Mr Howard and Mr Anderson sympathetic to Qantas.

Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.

[Chambudzi]

Talk of a merger of these two airlines is just 'off the subject', political flubber, designed to complicate and delay a very simple problem.
Right now, Qantas has completely free access to fly passengers out of Singapore to any third country of its choosing. It has been doing this for years with alacrity thereby enhancing its profits. SIA has no equivalent 5th freedom rights out of any Australian city to a third country. This is refered to in the press as an "Open Skies Agreement" which it most certainly is not for as long as there is no reciprocity. Vague talk of a merger is quite obviously not the way forward but open competition in genuinely "open skies" certainly is . There are only two ways to level the playing field. The first one is to open at least one city of SIA's choosing to 5th freedom rights out of Australia. This is ultimately inevitable. The second is to return to the PRE Agreement status quo preventing Qantas any rights to third countries out of Singapore. This would be retrogressive and isnt the the way international aviation industry is moving.
Muddled reference to how all airlines will eventually consolidate or merge has already taken place with the three major alliances sucking in most of the biggest players.
To talk about SIA and Qantas merging is hoplessly impractical because their brands are like chalk and cheese and they arnt even members of the same international alliances. They are each others oldest competitors and for the good of both, need to remain so.
Heavens!!! Would a merge mean that we would have to have ol J Travolta frequenting our cockpits and miserable grannies pushing trollies around our cabins. No Thanks! SIA has always said "Bring on the competition, it makes us better". That formula needs to be understood by Qantas managers and the senior Aust govt members. Right now it looks as if these guys are absolutely terrified of the potential competition SIA posses and is an admittance of their not being able to compete. So common Mr H, open up the skies and pay back your voters who are presently the only loosers with this ridiculous monopoly/duopoly on the Pacific routes.

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From Saturday 25 Jun issue of Business Times Singapore:
(Free access from 6pm local time or 1000hrs GMT)

http://business-times.asia1.com.sg/sub/companies/story/0,4574,160265,00.html?

Business Times - 25 Jun 2005

CORPORATE ANALYSIS
SIA-Qantas merger idea doesn't fly

It is but a red herring proposed by Australian ministers so Canberra could buy time to ponder a political hot potato, says VEN SREENIVASAN

IT WOULD have been laughed off if not for the fact that it came from key members of the Australian cabinet.

The very idea of Qantas and Singapore Airlines merging seems an impossibility - not just from a regulatory standpoint but also because it would seem to make little sense in terms of synergy.

Both are national icons that carry with them heavy political and cultural baggage.

Yet no less than the Australian prime minister and his trade minister seem to suggest it could happen.

Speaking to The Australian on Monday, trade minister Mark Vaile said: 'My view is, if (a merger) could occur, then the government should not rule that out. Quite frankly, that is the direction international aviation is moving in.'

Two days later, Prime Minister John Howard said almost the same thing. Asked by reporters whether cabinet had made a decision on allowing SIA access to the Sydney-Los Angeles route, Mr Howard said a such a decision would have to take into consideration 'whether the companies might come together in the future'.

Puzzled

So what's happening here? Analysts and industry observers are puzzled - and rightly so.

Shukor Yusof of Standard & Poor's, who has been following the twists and turns of negotiations between Singapore and Australia on the trans-Pacific route, reckons the Australian government is merely buying time as it ponders a political hot potato.

'A merger would not work - at least not in the near future - because that's not what the market in Asia-Pacific is looking for right now,' he says.

It's not hard to see why Australian politicians would want to distract attention from the Open Skies issue.

The Australian cabinet has, for some time, been under pressure from Singapore to complete the final chapter of the Memorandum of Understanding signed almost two years ago - a key component of which was the opening up of the trans-Pacific route to Singapore carriers.

Qantas and Australian unions have warned that SIA's desire to get in on the route - which yields almost 15 per cent of the Australian airline's profit - could cause extensive job losses and potential economic dislocation.

And Qantas is the biggest player in an industry that is yet to fully recover from the ravages of the past few years and is still threatened by high fuel prices. The flight attendants' association has claimed that 35,000 jobs are at risk if SIA enters the arena.

But Australia's tourism authorities and the business community want more competition and lower fares across the Pacific.

The issue has split the cabinet, with Mr Vaile, Treasurer Peter Costello and tourism minister Fran Bailey favouring liberalisation, and Mr Howard and transport minister John Anderson sympathetic to Qantas.

So the merger story - at least in the eyes of sceptics - looks like a nice little red herring. After all, if there is a possibility of a merger, the issue of whether SIA should be allowed on the trans-Pacific route can be put in the back burner.

But for a merger to take place, there has to be synergy - not just size. The fact is, SIA and Qantas serve similar routes and compete in similar markets.

A merger would not deliver the requisite increase in revenue or cost savings.

A better deal?

But would it give consumers a better deal? Not necessarily. Rather, it might lead to just the kind of job losses and economic dislocation that Qantas and its unions have been fretting over.

Perhaps, Qantas would be better off merging with Air New Zealand, though even its attempt to buy into its smaller neighbour has been rejected by the Australian regulators. If the Australian Competition and Consumer Commission did not see the merits of Qantas buying a 22 per cent stake in Air NZ, what are the chances of it allowing a merger between two of Asia's biggest airlines?

Regulatory hurdles aside, SIA and Qantas are national icons. They carry with them emotions of national pride, to say nothing of peculiarities in corporate culture.

In any case, both Qantas and SIA have been rather cool on the merger idea.

Furthermore, SIA has had mixed fortunes with mergers and acquisitions.

While it made a nice profit when it sold its 10 per cent stake in Swissair in the mid-1990s, it suffered huge losses when the value of its Air NZ stake got whittled down as Air NZ had to be rescued by its government following the Ansett collapse three years ago.

And it has never forgotten how its offer to buy a 25 per cent stake in Qantas was brushed aside, only to be later sold to British Airways when the Australian carrier was privatised in the early 1990s.

That said, strategic tie-ups in particular areas cannot be ruled out.

SIA and Qantas have already committed themselves to pooling their engineering resources for the upkeep of their Airbus A380 fleet. And SIA's home port of Singapore is Qantas's biggest hub outside Sydney.

Scepticism aside, it is possible the 'merger issue' was brought up to signal to Qantas that the Australian government might be willing to exercise some flexibility on the issue of foreign ownership of the airline.

Qantas, which has a 49 per cent foreign ownership cap, has for years been lobbying the government to allow it to take in more, and perhaps cheaper, foreign capital to fuel its expansion.

And its search for new sources of growth has become even more urgent after it failed to buy into Air NZ in 2003 and lost a valuable equity partner in British Airways, which sold its 18 per cent stake in Qantas last year.

After accumulated losses of US$35 billion in the past four years and another US$6 billion loss expected this year, there is little doubt that the global aviation industry could be swept by a wave of consolidation.

And in such circumstances, rich pickings could be had by players with strong balance sheets.

Govt message

So is the Australian cabinet telling Qantas the government may be flexible on foreign ownership (and foreign capital) if it is willing to be flexible on open skies?

It is possible - and if so, Mr Vaile was probably the best person in the Australian cabinet to deliver such a 'merger message'.

He is, after all, widely known to be one of the few globalists in the Howard cabinet, with strong free-trade views. At the end of the day, the issue of merger could have been raised as a delaying tactic so Qantas can strengthen its position ahead of an inevitable opening up of the trans-Pacific route, and as an inducement for Qantas to drop its strong opposition to SIA moving in on its own turf.

But one thing is for sure: the Australian government must know it has to make a decision on open skies sooner rather than later.

As an Australian newspaper noted this week, the Howard government's 'capitulation to Qantas's skilful and relentless lobbying against competition on the Pacific route' could reinforce the impression that this government has no stomach for tough and necessary reforms.

Ultimately, this is an issue about competition and choice for consumers, most of whom are Australians, and not just about the interests of Qantas.

Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.

[Chambudzi]

This is just more political manoevre and pointless speculation.
Mr Dixon, CEO of Qantas's main complaint is that he says SIA have governmental protection out of Singapore. He knows full well that this is a whopping great untruth and is precisley what Qantas has on the Pacific routes. 25 Qantas flights a week go north out of Singapore with not a single 5th freedom reciprocal right for SIA flights out of Australia. It is an imbalance that the SIA and Govt authorities have been too patient and way too polite over.
Time to get tough I think and there are few ways to do so.

[Miriam]

Chambudzi,

Correct me if I am wrong...

An open skies agreement does exist between Australia and Singapore, SQ has more services a day to Australia from Singapore that what QF does.

Numerous airlines run flights through Singapore to Australia, does Singapore have 5th freedom rights with all those countries ?

Each year airlines are stopping to fly to Australia through Singapore, on going passenger are being carried on code shared SQ and QF flights, this is reducing the net income Singapore as a country is receiving. QF have reduced the number of ports it serves in Europe.

QF did at one stage have a significant involvement in SQ.

If 5 th freedom rights are to be granted to Singapore, it would be granted to any Singapore operator, not just SQ, such agreements are between ICAO States, not between and ICAO state and an Airline.

Australia will also need to consult with the US and New Zealand governments at the 5th freedom rights have other implications.

Singapore, Hong Kong, Bangkok, and KL are all selling their ports as a stop over ports for ultra long haul routes. Singapore realises with the event of super long haul aircraft airlines like EK bypass Singapore for more direct flights. Singapore is desperate not to be left out of this market….how can it reinvent itself…

QF is using SIN at the moment as they offered a better deal than BKK did, its a business transaction, they could easily move to KL or BKK. If they did move, 5th freedom rights could not be withdrawn.

If aircraft didn’t have to stop in Singapore for fuel going east or west, using ultra long haul aircraft, what effect would this have on Singapore ? What does Singapore have to offer a tourist on the global scale .. is it cheap ? does it have unique natural attractions ? is it quiet ? is there anything to see ? most people can see all the tourist attractions in Singapore in a few days.

Unlike Hong Kong, Singapore does not have 1/3 of the world population within 3 hrs flight time.

Again...why isn’t SQ so vocal about 5th freedom rights out of LHR, is it because there is too much competition already across the Atlantic ? Why doesn’t SQ compare its cost per NM SIN-LHR to that of the likes if Virgin or BA on the LHR-JFK ?

When comparing seat miles on QF to LHR and LAX, why does the Singapore press not tell the Singapore population that the aircraft going to LAX are fitted with less seats than the ones to LHR ?

If your a pilot, do some simple maths, have a look at the distance MEL-LAX (6883 nm great circle) and SIN-LHR (5879 nm great circle), and have a look at the QF schedule.. anyone with half a brain would realise flying MEL-LAX is about 11% longer in distance than SIN-LHR (costs fuel to carry fuel), that combined with less seats on the aircraft going to LAX means the cost per NM goes up (number of seats reduced to allow for greater fuel payload).

Seems you read and believe everything you read in the Singapore press…..if you were to believe the Singapore press you would think that Japan and China are on the brink of war…and you wonder why Singapore is being left behind…or for that matter why Singapore press journalist was arrested in Hong Kong.


:ooh:

[Chambudzi]

It is almost impossible to answer a post like Miriams because she/he is on some other subject or discussion.
What on earth does it matter how many seats there are on a particular route or how many miles there are between various cities like Singapore and London in this arguement. The subject is about an imbalance of the so called "open skies agreement" between Singapore and Australia. This arguement is therefore essentially about SIA and Qantas competing on the Pacific routes. Talk of Hong Kong being close to a third of the worlds population, EK, BKK, KL, Singapore costing too much for tourists and being boring and some twaddle about Japan and China has nothing to do with this arguement.
Why dont you try a repost Miriam and attempt to make some logical points without worrying about what you imagine I read in the papers or what the Singapore public are being told about seat numbers.
I have reread your post a few times to see if perhaps I am being a bit hard on you but I am afraid your points are mostly incomprehensible.
For instance, your off the subject, back to front arguement about SIA looking for rights to fly onward to the USA from LHR. Factually SIA have been trying to get those rights for well over a decade and have allowed BA to fly 5th freedom out of Singapore for the same period of time. Stiff competition over the Atlantic is exactly the type of competition SIA relishes and thrives on. They do it now by owning half of Virgin Atlantic.

[Miriam]

Chambudzi,

The Singapore goverment used the cost per NM as an argument as to why SQ should be allowed to fly across the pacific, they neglected to inform or disclose the real reasons for the higher cost per NM.

When QF made statements to explain this, the Singapore goverment automatically dismissed them. Like the Singapore goverment, you have just dismissed cold hard facts.

A number of airlines have rights and existing capicity is available for additional flights from North American operators (Canada and USA), if Australia wanted to increase tourism numbers these existing carriers that have oncarriage networks in North America would be a better long term stratergy.

Singapore airlines can not offer any oncarriage on domestic flights in Australia or North America, so how can they get people to tourist destinations ? Without oncarriage how do they increase tourism levels ?

You seem to be unaware of the demographics in the trans pacific or trans atlantic markets.

SQs idea of competition is capacity dumping on thin routes, bankrupt existing carriers then increase the fares.

Look at the cost from Singapore to India, and Singapore to UK, why does it cost so much to go to India ? Why is the cost per NM to India higher than UK ?

Funny you mention Virgin Atlantic, how many flights do they operate into Singapore .... zero !!! thats real competition !

:uhoh:

[Chambudzi]

Well the education required to try and get Miriam onto the central issue of 'open skies imbalance' is so vast I cant work up the effort to try. Perhaps someone else has the time. Its like arguing with my wife. You know, I will say "why did you leave the back door open last night" and she will answer "Because you never clean the plates" ???????? Yep I know its very muddling.

[Miriam]

Chambudzi,

You state ...

"Right now, Qantas has completely free access to fly passengers out of Singapore to any third country of its choosing."

This is incorrect, QF cannot fly to most of Asia from Singapore.

An "Open Skies Agreement" has been in place for many years between Australia and Singapore, this has allowed SQ to fly more often and with more seats to every Australian port from Singapore than QF does.

"To talk about SIA and Qantas merging is hoplessly impractical because their brands are like chalk and cheese and they arnt even members of the same international alliances."

They will be sharing T3 at Singapore together...sharing A380 maintenance, training, and logistics.

Please remember the reason QF uses SIN as a port is that it was invited to do so. Singapore gets enormous benefit from the flow of traffic from airlines and ships, without that they would revert to a third world country.

Singapore is a little country, with a small population, that isn’t know for much on the world stage.

:ugh:

[Chambudzi]

So Miriam has decided to get back to the subject
1, QF dont fly to most of Asia from SIN because they have not asked to do so. They have never been restricted from doing so and have never been refused requests to fly to any third country. They need to 'ask' and be refused Miriam before you can use that as any kind of arguement,
2 SQ flies more seats to Aust because they care to compete on more sectors than QF. Cant you see Miriam that this is how open skies are supposed to work.
3 Sharing T3, 380 maintenance or the same ops room has absolutely nothing to do with merging airlines. It is called saving a few bob by cooperating. Both QF and SQ do this with many other airlines at dozens of stations and there has never been a hint that these other airlines are trying to merge with QF and SQ.
4, Once again you go way off the subject with your last point. You talk about Singapore reverting to a 3rd world country, having an insignificant population and being worthless on the world stage showing enormous disrespect for the country and prooves your bias when you discuss this subject. You have with all your posts shown a very obvious bias against SIA, Singapore, its news papers and more. It is this bias that prevents you from providing any kind of arguement on this subject because every point you make is tainted by your hate. You need to use logic and not emotion to make your discussion worthwhile.

[Miriam]

Chambudzi,

QF is denied from flying to mainland china, many Indian ports, KL, and Jakarta from SIN.

These routes are protected preventing other carriers, Singaporean or others from competing on them.

If you have any evidence to suggest that the local news papers are not censored, don’t report more comments by Goh rather than balanced view, and that Singapore is totally dependent on trade, has no natural resources. I will be more than happy to stand corrected.

I am not showing any bias against SQ or Singapore...the arguments Singapore have used for the need for an open skies agreement, i.e. high cost per NM (MEL-LAX is lower than SIN-India), and increased tourism numbers without having any ability for on carriage from major ports to tourist destinations.

You have refused to address these facts with any counter argument, you have dismissed them as irrelevant, however they are the major points the Singapore government have been stating.

Your comment "2 SQ flies more seats to Aust because they care to compete on more sectors than QF. Cant you see Miriam that this is how open skies are supposed to" does reflect the facts..not what the Singapore government has stated...an open skies agreement does exist between Australia and Singapore, and Singapore carriers are the ones with the imbalance in their favor.

Your comment "3 Sharing T3, 380 maintenance or the same ops room has absolutely nothing to do with merging airlines. It is called saving a few bob by cooperating." is incorrect, the sharing of resources like the shared facilities at SIN are about economies of scale, with a merger of the airlines, the costs will reduce...or as you put it "saving a few bob by cooperating"...airlines work on tight margins, any savings is significant.

:}

[Chambudzi]

Miriam
QF is not restricted from flying - Singapore to India or China by the Singapore authority. The 3rd countries are preventing the expansion of their open skies. so you can hardly hold this against SIA.
Your opinion about censorship, what Singapore is dependant on, or Mr Gohs speeches has nothing to do with this argument and everything to do with your bias.
I have dismissed the points you call facts as irrelivant because that is what they are for the most part .
If your unfocused posts are to be taken seriously you would have us believe
THAT the open skies agreement between Aust and Sing
hopelessly favours SQ and restricts QF.
THAT SQ and QF have pretty much merged already.
THAT if it wernt for QF's kindness in using Changi, Singapore itself would soon revert to a 3rd world status.
THAT there is some issue over seat miles from SYD to LAX and SIN to LHR.
Once again I will try to drag you back to the facts.
25 QF planes a week fly pax out of SIN to LHR and other European countries. Anytime QF wishes to increase that number all they have to do is ask. Those seat miles are not reciprocated since SIA is not allowed to carry a single passenger to a 3rd country from Aust. THAT IS THE ISSUE Miriam.
Like QF and the Aust cabinet you have steadfastly refused to address this issue.
Instead of talking about this reciprocity you insist on talking about any other issue you can dream up like arrested Sing journalists in HKong as if that were vaguely important here.
I will allow you the last pointless comment as I have a life to lead.
Over and Out