Singapore Airlines’ interest in Virgin Australia: Expedience or strategy?

YOU cannot help but suspect that Singapore Airlines’ acquisition of a 10-per cent stake in Virgin Australia is a hasty reaction to the Qantas-Emirates Airlines partnership announced in September. Largely because it came so soon after – barely three months – the two airlines had entered into a strategic alliance for seamless transfers and shared use of airport lounges. SIA will also benefit from wider access to the Australian market. The intention then was a commercial arrangement without equity participation. But there has been a change of mind.

Courtesy aviationnews.eu

Tying up with Virgin is probably SIA’s best bet in countering the Qantas-Emirates threat, to be able to convince a wider Australian market to continuing flying to Europe via Singapore instead of Dubai, which will replace the former as the hub for Qantas’ Europe-bound flights. In the bigger picture, Virgin in its own alliances with other major carriers such as Delta Airlines and Etihad Airways can open up new opportunities for SIA as well. Besides, as more airlines work towards partnerships to strengthen their networks, SIA may fear being left out in the game if it does not act soon enough.

But compared to the 49-per cent stake SIA acquired in Virgin Atlantic back in 1999, the new Virgin stake is paltry and looks like a token gesture. You cannot fault SIA for being cautious when the buy back then has turned out to be less deserving of the hype it generated, and which SIA has expressed its intention to let go. There was at the same time the painful lesson of a bad mistake in buying into Air New Zealand because of its interest in rescuing a troubled Ansett Australia. (See Singapore Airlines releases Tiger into Virgin’s lair, Oct 31, 2012). Perhaps SIA fears a déjà vu; SIA subsequently relinquished its 25-per cent stake in Air NZ at a loss of US$500 million.

Courtesy flight.org

But still, the SIA-Virgin relationship is likely to be mutually beneficial to the partners, and with Virgin acquiring majority control of Tiger Australia, to at least sustain if not enhance the competition in Australia, which is a key market for SIA. For Virgin, it provides another significant international connection. So, it’s not the size of the stake but its intention that matters, if I may quote SIA CEO Goh Choon Phong who said: “With this investment, there is no doubt that Singapore Airlines and Virgin Australia intend to remain alliance partners for the long haul.”

Advertisements

About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: