Sep 23, 2013

    SIA seeks expansion with shift to India

    ALMOST 13 years after pulling the plug on its last attempt to enter the Indian market, Singapore Airlines (SIA) is taking another stab at the country again by teaming up with the Tata Group as part of a broader strategic shift.

    Sources said that the management, led by low-profile chief executive Goh Choon Phong, is pushing ahead with a "portfolio" strategy that revolves around increasing the company's exposure in the fast-growing Asia-Pacific and low-cost markets.

    By diversifying its revenue streams and creating new ones, like the Indian joint venture, Mr Goh and his team plan to reduce SIA's dependence on the flagship carrier over the medium term, according to investors and analysts.

    Last week, the two companies applied to set up a new New Delhi-based full-service carrier, pledging a combined US$100 million (S$125 million) to get it going. This follows an unsuccessful attempt to do the same in the middle of the 1990s and a failed attempt to buy state-owned Air India in 2000.

    The new carrier, if approved, will initially serve the 1.2-billion-strong Indian population. Barring no political or regulatory obstacles, it could be airborne in about a year.

    SIA, which will have a 49 per cent stake in the carrier, will be banking on its success.

    Intense competition in its mainline medium- and long-haul markets from Gulf carriers like Emirates and neighbours such as Garuda Indonesia and Malaysia Airlines, and weak demand for services to Europe, means that SIA - Asia's second-biggest airline with a market value of US$10 billion - has changed course in recent years.

    "It just has to address why its brand should still be at a premium. It still has a lot to do to (make) investors be a bit more confident of its prospects," said Ms Kristy Fong, an investment manager at Aberdeen Asset Management, which holds a stake of about 4 per cent in SIA.

    Despite the near-term pressure on profits, SIA's cash pile of US$4.5 billion - the biggest among Asian airlines - means that it has the ability to invest in existing and new airlines, the Centre for Aviation said in a report.

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

    Under existing regulations, it must serve the domestic market for five years before it can operate international flights. Taxes and airport fees are high, and profitability rare for the country's airlines.

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