Third time lucky? Singapore Airlines sets sights on India

Reuters

By Siva Govindasamy and Anshuman Daga

SINGAPORE, Sept 22 (Reuters) - Almost 13 years after pullingthe plug on its last attempt to enter the Indian market,Singapore Airlines Ltd is taking another stab at thecountry by again teaming up with the Tata Group as part of abroader strategic shift.

Last week, the two companies applied to set up a new NewDelhi-based full-service carrier, pledging a combined $100million to get it going. This follows an unsuccessful attempt todo the same in the mid-1990s and a failed attempt to buystate-owned Air India in 2000.

The new carrier, if approved, will initially serve the 1.2billion Indian market. Barring no political or regulatoryobstacles, it could be airborne in about a year.

SIA, which will have a 49 percent stake in the carrier, willbe banking on its success.

Intense competition on its mainline medium and long-haulmarkets from Gulf carriers like Emirates Airline and neighbourssuch as Garuda Indonesia and Malaysian Airline, and weak demand on services to Europe, means thatSIA, Asia's second-biggest airline with a market value of $10billion, has changed course in recent years.

Sources familar with the airline's strategy say that themanagement, led by low-profile chief executive Goh Choon Phong,is pushing ahead with a "portfolio" strategy that revolvesaround increasing the company's exposure to the fast-growingAsia Pacific and the low-cost markets.

By diversifying its revenue streams and creating new ones,like the Indian joint venture, Goh and his team plans to reduceSIA's dependence on the flagship carrier over the medium term,say investors and analysts.

"They just have to address why their brand should still beat a premium. They still have a lot to do to actually getinvestors to be a bit more confident of their prospects," saidKristy Fong, an investment manager at Aberdeen Asset Management,which holds a stake of about 4 percent in SIA.

CASH POWER

Despite the near term pressure on profits, SIA's cash pileof $4.5 billion - the biggest among Asian airlines - means thatit has the ability to invest in existing and new airlines, theCentre for Aviation (CAPA) said in a report.

It started Scoot, a long-haul low-cost airline, last year totap the low-fare leisure markets that SIA left behind as itfocused on the premium business. Its one-third stake inshort-haul LCC Tiger Airways Holdings Ltd could alsopotentially go up to 46.5 percent.

SIA bought a stake in Virgin Australia Holdings Ltd in late 2012 and increased this to 19.9 percent, ensuring accessto the important Australian market.

Silkair, SIA's fully-owned regional subsidiary, will retireits fleet of Airbus A320s and induct new Boeing 737s over the next few years as it grows its network ofAsia-Pacific services. SIA itself has ordered dozens of newAirbus A350s, and Boeing's 777-300ERs and 787-10s.

The Indian venture has its challenges. SIA must successfully chart a course around India's political andbureaucratic minefield for regulatory approval.

Under existing regulations, it must serve the domesticmarket for five years before it can operate internationalflights. Taxes and airport fees are high, and profitability rarefor the country's airlines.

SIA's competitors in the full-service segment arebeleaguered Air India, which survives only because of thehundreds of millions of dollars New Delhi has pumped into it,and Jet Airways, in which Etihad Airways is buying aminority stake.

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