Singapore Air Seeks Deals After Jeju Talks Collapse

Singapore Airlines is continuing the search for growth through partnerships and investment in Northeast Asia, days after tie-up talks collapsed with South Korean budget carrier Jeju Air.

Singapore, which tried to buy into China Eastern Airlines in 2008, is looking particularly for a way to access China's vast domestic flights market.

SIA has put money into markets such as India and Australia to boost income as growth in passenger numbers languishes far below the global rate, partly due to Gulf carriers offering an increasing number of flights at lower prices.

Its latest deal floundered on Thursday, with SIA saying it could not reach agreement with Jeju in what would have been its first investment in the region. It may now turn its attention to Chinese targets after Delta Air Lines bought 3.55 percent of China Eastern in July, analysts said.

"Not getting Jeju Air is disappointing but, while South Korea and the Northeast Asian low-cost market have potential, the bigger problem is China," one person close to the company said.

"SIA needs a Chinese partner who can give them access to the domestic market, and feed traffic onto the SIA network. They don't even have domestic codeshare partnerships."

EXPANSION

Chief executive Goh Choon Phong, in office since January 2011, has so far sought growth by investing in Virgin Australia and Indian start-up Vistara, launching long-haul budget airline Scoot, and becoming majority owner of short-haul carrier Tiger Airways.

But SIA passenger numbers have fallen 2 percent from 2007 while global traffic has risen 4.8 percent each year.

"Competitors have upped their game and have successfully encroached into SIA's markets," Maybank Kim Eng analysts said in a recent report. "Furthermore, the emergence of low cost carriers such as AirAsia, Cebu Pacific and Lion Air has permanently changed the dynamics of the industry."

CHINA CODESHARE

The airline is already in China, flying to 11 destinations with subsidiary SilkAir. Codesharing with a local carrier would allow the pair to sell tickets for indirect flights to the partner's destinations, while deeper cooperation including investment could allow them to coordinate flight times.

Neither arrangement is common in China.

"SIA and SilkAir can fly directly to several points in China, but they can't cover every city," said Singapore-based analyst Brendan Sobie at aviation consultancy CAPA. "The Chinese domestic market is a big gap in SIA's network."

Analysts point to China Air as a fitting partner for SIA as both are members of the Star Alliance.

The airline has an extensive domestic network out of both Beijing and Shanghai, but it is almost 20 percent owned by SIA's Hong Kong rival Cathay Pacific which could block any overtures, analysts said.