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SIA, Air NZ forge win-win alliance

Both can fly to some cities on each other's network, S'pore-NZ capacity beefed up

[SINGAPORE] In a move yesterday expected to pay off for both carriers, Singapore Airlines (SIA) and Air New Zealand are deepening ties in a partnership that will beef up capacity between the two countries while giving each airline access to specific destinations in the other's network.

SIA has been forging partnerships and alliances to stay ahead of the competition as it battles with sliding yields and tough competition from both the regional and cash-rich Gulf carriers. For Air NZ, this will enable it to relaunch flights to Singapore after it cut the city-state from its network in 2006, due to a lack of profitability.

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SIA, which currently operates a daily service to Auckland using a smaller Boeing 777-300ER aircraft, will add more seats by swopping it for the jumbo Airbus A380 during peak season. In addition, Air NZ will launch daily flights between Auckland and Singapore with newly refitted B777-200ER planes by taking over five flights presently operated by SIA as well as introducing two more flights weekly.

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This will effectively lift the total number of flights between Singapore and Auckland by the two carriers from 12 per week to 14 weekly, stepping up competition on the route which is also operated by airlines such as budget carrier Jetstar and Qantas.

SIA will also continue its daily Singapore-Christchurch service. In time, the two Star Alliance members are looking to raise their existing capacity between Singapore and New Zealand by up to 30 per cent year round - a signal of their confidence that the undertapped market can be stimulated for greater traffic flow, said SIA CEO Goh Choon Phong at the signing of the deal yesterday.

As part of the deal, the joint revenue sharing tie-up means that SIA's passengers will have access via codeshare travel to Air NZ's domestic network - where it has some 84 per cent market share - as well as selected international destinations, namely the Pacific Islands.

Similarly, the Kiwi carrier will be able to widen its reach to markets on SIA's network in Europe, India, South-east Asia and Africa, in addition to cities in the region served by SIA's sister carrier SilkAir.

Commenting on the strategy to boost capacity, Mr Goh said: "As we increase our collaboration with Air NZ, we have greater opportunities to talk about seamless scheduling, how we can sell together, how we can have a greater proposition for the public, the corporate travellers. This is enlarging the market. From that perspective, we strongly believe there is such a market and we can grow it."

SIA and Air NZ aim to launch the flights by December this year, assuming it gets the necessary approvals from the Competition Commission of Singapore and the New Zealand Minister of Transport.

Air NZ CEO Christopher Luxon added: "Air New Zealand is on a positive growth trajectory with a clear focus on Pacific Rim destinations. An alliance with SIA clearly fits our business objectives of working with the right partners in the right markets."

SIA and Air NZ have a history of their own as well, with the former previously holding a 25 per cent stake in the Kiwi carrier before it was diluted to 6.3 per cent after cash-strapped Air NZ received a government bailout. SIA sold the stake in 2004 at a loss.

CAPA - Centre for Aviation analyst Brendan Sobie said: "In terms of destinations, this is a huge boost for Air NZ and a small boost for SIA's network. But it's about thinking strategically, having closer partnerships (and) trying to compete in a competitive industry."

UOB-Kay Hian analyst K Ajith reckons SIA is eyeing greater outbound traffic from Singapore as passengers transit in the Republic, which could also strengthen Changi Airport's position as a hub.

The two carriers - which together with Abu Dhabi's Etihad are the three major shareholders in Virgin Australia (VA) - were also quick to point out that the stronger ties from the new alliance would have no bearing on their dealings with VA. All three shareholders raised their shareholdings in VA when the Brisbane-based carrier recently launched a A$350 million (S$397 million) capital-raising exercise, which could see them receiving seats on VA's board.

And unlike Air NZ's recent strategic agreement with Cathay Pacific for codeshare between Auckland and Hong Kong, that tie-up remains limited in scope to Hong Kong and China. The Kiwi carrier's alliance with SIA is one of its two centrepieces, the other being its partnership with VA, stressed Mr Luxon.

SIA, which has codeshare ties with some two dozen airlines, is also launching a joint-venture airline with India's Tata Sons this year.

SIA shares closed at $10.08 yesterday, down three cents.