Singapore Air seeks Northeast Asia deals after collapsed Jeju talks: sources

[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 per cent 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 per cent from 2007 while global traffic has risen 4.8 per cent 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.

The airline has an extensive domestic network out of both Beijing and Shanghai. But it is almost 20 per cent owned by SIA's Hong Kong rival Cathay Pacific Airways Ltd which could block any overtures, analysts said.

REUTERS