Singaporeans expand into Qantas home ground
City Index October 30, 2012 2:45 AM
<p>Qantas’ ambition to become a premium player in the Asia Pacific aviation market is meeting some stiff resistance, most notably from other key players in […]</p>
Qantas’ ambition to become a premium player in the Asia Pacific aviation market is meeting some stiff resistance, most notably from other key players in the region like Singapore Airlines. We see today’s move by Singapore Airlines as a strategic shift down south to back Qantas’ main domestic competitor. While Qantas has been feeling the pain in its international division, its domestic business has held up relatively well. There is scope for downside and Singapore Airlines wants to make sure Virgin Australia is as competitive as possible. It’s by no co-incidence that its decision to tip $105m in Virgin shares today meets that goal.
The deal does two things. First it provides a support level for Virgin Australia shares – the placement at $0.43 cents is in line with the recent 30 day average. Virgin’s funding will now be secured by two key global aviation giants who both have a controlling interest. Secondly, Singapore Airlines knows that it is one of several airline investors now in Virgin Australia so it wants to maintain its blocking interest. Code sharing with Middle Eastern airlines does little damage to Singapore Airline’s overall business so it doesn’t mind sitting beside Etihad as a co-investor. A simultaneous announcement that Virgin will take out the majority ownership of Tiger is further proof that the domestic landscape is likely to become a lot more competitive.
Bottom line: After returning from Singapore last week, we couldn’t help but wonder how the Singaporeans would respond to all the Jetstar airlines sitting on the tarmac at Changi Airport. As Qantas closes more Asian deals and looks at ramping up its Emirates code share alliance, competitors will be feeling the heat. We’ll be watching closely the response from Qantas at Friday’s AGM. It is likely to counter this move by announcing another Asian deal – like Jetstar Hong Kong for example.
Today’s announcement reduces the likelihood of Regional Express (REX) becoming the vehicle for Singapore’s Qantas retaliation, so some interest could come out of the REX share price in the coming months. One thing is for sure, John Borghetti has shown his ability to take a lackluster company and turn it into a strategic regional player.