Qantas and Jetstar as well as every major airline from Japan to the Middle East will be reviewing their strategies and outlook following Singapore Airline’s decision to launch a medium to long range wide bodied low fare carrier.
SQ has not given any details of fleet or routes, further adding to the uncertainty, but there is one certainty, and that is that other carriers will be stress tested by the move.
That stress may prove sufficient to trigger real consolidation in Asia-Pacific carriers, including the Qantas group airlines and Virgin Australia, before this decade is over.
For Qantas, whether investors, flyers or pilots, engineers and other employees, the thought of Singapore Airlines possibly ‘Jetstarising’ itself raises a whole range of possibilities.
Including of course, the possibility that it will prove as big a commercial failure as its Tiger Airways Australian investment, even though the main Tiger (Singapore) operation is reporting strong growth and reasonable profits.
Singapore Airlines has already cut its exposure to Tiger from an initial 49 per cent stake to just under 33 per cent.
But there is another dimension to the sharp change in policy that has seen a new management at SQ opt for a long haul low fare brand. What was announced last night in Singapore has its roots in the vision Lee Kuan Yew had for modern Singapore in the middle of the last century. Singapore Airlines was devised to attract and aggregate traffic through Changi Airport, making it one of the foundations of Singaporean prosperity, in parallel with a massive development of its port facilities, and the city state’s use of transport infrastructure to drive everything from its prominence in tourism and the location of major trans national enterprises to a powerful concentration of oil refineries.
That success is being cloned, if not surpassed in aviation and shipping in the UAE in Dubai and Abu Dhabi. The strong arm of government development priorities is visible in having Singapore’s iconic flag carrier pursue a second brand long haul carrier that will enhance that aggregation of leisure traffic over Changi, just as it was evident in the Singaporean government’s enthusiasm for the offshoring of Jetstar Australia A330s and the Jetstar Asia franchise at the that airport as well as the proposed single entity Qantas is setting up to run the 50 assorted Boeing 787s it has on order for use by its full service and Jetstar brands.
Singaporean observers also point to sensitivity at high levels to the inevitably that Shanghai will become the Singapore of northern China and Asia in terms of traffic aggregation and economic activity, and they are more than aware of the Qantas interest in ‘Shanghai solutions’ for its own Pan Asia and China growth ambitions.
You have to live and work in Singapore to begin to appreciate the intensity with which its business establishment wants to see Tiger, Singapore Airlines, or even Jetstar Asia, curb the expansion of Kuala Lumpur based AirAsia and its long haul AirAsiaX division.
How Singapore Airlines goes about satisfying all of these ‘wishes’ as well as making a net gain from operating an ‘independent’ second long haul carrier is of compelling interest to all the players in a hemisphere that is outgrowing North America and Europe in airline activity.
In the early days of Tiger Airways it was made clear to analysts and commentators that this was an investment that bought Singapore Airlines a seat at the high table when Asia-Pacific airline consolidation took place in earnest, some time in the future. Similarly, its instigation of the Tiger Airways Australia subsidiary was intended serve its interests in any Australian consolidation and give it leverage over the Qantas group, as well as repaying the courtesy of Jetstar Asia being established on its home turf.
By and large Tiger Australia has failed to deliver such leverage, and as far as this country is concerned, turned itself into a money pit, but just not as deep a pit as the one Singapore Airlines dug for itself with its investment in Air New Zealand when that carrier owned 100 percent of doomed Ansett Airlines, a foray which incinerated around $700 million worth of its cash (unadjusted) when Ansett was cast off by the New Zealand carrier in September 2001.
So while Tiger is pretty much useless in Australia for advancing any strategy Singapore Airlines may have in mind, it now has a new relationship with Virgin Australia, and one that may be taken much further when the Australian carrier finalises its Asian alliances before the end of December.
There is a slight untidiness in the fact that Richard Branson who owns more than 25 percent of Virgin Australia also owns 20 percent of AirAsiaX, or more pertinently, one fifth of whatever debts the long haul arm of AirAsia might assume. Nothing that couldn’t be fixed, really, in the interests of a really ripper arrangement between Virgin Australia and Singapore Airlines, which owns 49 percent of Virgin Atlantic.
All of which gives Qantas/Jetstar something additional to contemplate as it waits to see exactly what Singapore Airlines is up to with a 2nd long haul brand that can only mean intensified competition for those assets that Qantas through Jetstar invests in Changi.
By coincidence Japan’s only viable major flag carrier, All Nippon Airways, has announced it will launch a shorter haul low cost brand called ‘Peach’ with a fleet of ten A320s based at Osaka’s Kansai Airport in the near future.
An earlier version of this report appeared in the Crikey subscriber bulletin today.