<![CDATA[Singapore Airlines says Malaysia Airlines tie-up is 'best' approach amid hurdles in aviation mergers]>
Singapore Airlines (SIA) has set its sights on becoming a more influential player in the region but sees regulatory hurdles getting in the way of Asia's aviation industry riding the broader trend of consolidation.
In the absence of straightforward merger and acquisition opportunities, CEO Goh Choon Phong said he was satisfied his airline's new Malaysia Airlines (MAS) partnership would make it more profitable.
"We did observe the consolidation taking place elsewhere [but] I am not holding my breath in our part of the world owing to various considerations. Many of the airlines involved here are national carriers," said Goh, speaking at the airline's 2019-2020 half-year financial results meeting on Wednesday.
Citing the MAS deal as the best approach in the meantime, Goh added: "I think until the regulatory environment in this part of the world allows for more liberal consolidation, this will be a good interim solution."
The global trend towards airlines merging has not extended to Asia, where the domestic political considerations of national governments have made such cross-border mergers and takeovers less feasible, and remain confined within countries and territories.
On Monday, Anglo-Spanish International Airlines Group, which is one of Europe's three largest groups, agreed on a US$1.1 billion deal for Spain's Air Europa.
Malaysia Airlines agreed a wide-ranging partnership with Singapore Airlines that stopped short of a full merger. Photo: Reuters alt=Malaysia Airlines agreed a wide-ranging partnership with Singapore Airlines that stopped short of a full merger. Photo: Reuters
Lufthansa Group " the continent's largest, with airlines operating in Germany, Switzerland, Austria and Belgium " was linked to a renewed bid for Alitalia, Italy's near bankrupt flag carrier.
In Asia, SIA and financially-troubled Malaysia Airlines have agreed on a wide-ranging partnership that stops short of a full merger, subject to regulatory approvals that Goh said could take a year to finalise.
Goh said the partnership model was "the best way to cooperate, to get a win-win in the region" and reiterated that his airline had not spoken to its counterpart in Kuala Lumpur about taking a financial stake. Japan Airlines, Qatar Airways and China Southern Airlines have reportedly sought strategic stakes in MAS, which is controlled by the Malaysian government's sovereign wealth fund Khazanah Nasional.
SIA and MAS were previously one company but Malaysia-Singapore Airlines split in 1972 after Singapore left its union with Malaysia to became independent in 1965.
The new SIA-MAS deal includes coordinating schedules, fares and sharing revenue on flights between the two countries, and increasing code-share ticket sales on each other's regional and long-haul routes. Passengers on both airlines will benefit from expanded frequent flier benefits.
SIA on Tuesday reported stable net income in the first six months of the financial year with profits up 4.9 per cent to S$205.6 million (US$151.3 million) after revenue increased 5.3 per cent to S$8.3 billion. The second quarter was also strong with a 68 per cent gain in profits from associates and joint ventures.
The company has also taken more bookings for the coming months than in the same period last year, despite concerns about a global economic slowdown and ongoing trade tensions.
Asked if SIA would consider an opportunistic bid for Hong Kong Airlines, which was forced by the government to cut flights to improve its financial position, Goh gave little away. Temasek, the Singapore state investor that owns the majority of SIA was last year linked to the carrier, which is controlled by Chinese conglomerate HNA.
"On any investment and any interest in terms of equity, we will announce it when we have something to announce," Goh said.
The global trend towards airlines merging has not taken effect in Asia, where the domestic political considerations of national governments have made such cross-border mergers and takeovers less feasible. Photo: AFP alt=The global trend towards airlines merging has not taken effect in Asia, where the domestic political considerations of national governments have made such cross-border mergers and takeovers less feasible. Photo: AFP
The region's airlines, particularly in Southeast Asia, are dominated by largely loss-making national carriers, including Thai Airways, Garuda Indonesia and Philippine Airlines, which operate in more liberal skies and face increased challenges from low-cost airlines.
By 2037, Asia is forecast to be home to four of the 10 largest aviation markets, according to the International Air Transport Association. Asia-Pacific traffic is expected to triple to 3.9 billion passengers annually, accounting for half the global growth.
"Consolidation is long overdue in the Asia airline sector and would significantly improve the region's outlook. However, there are still many barriers and challenges to overcome before we see meaningful consolidation," said Brendan Sobie, an independent analyst at Sobie Aviation, citing ongoing overcapacity challenges and "intensifying and irrational" competition.
"Singapore Airlines would naturally look at any opportunities that arise but the reality is the opportunities being presented at the moment are limited and not very attractive. This is a long game as we saw with SIA and Tata finally teaming up to launch Vistara in early 2015 two decades after their first attempt."
The Singapore flag carrier has also tried to expand its business beyond the city state's 5.2 million population as part of a so-called "multi-hub" strategy, making Vistara part of that effort. SIA also has a 20 per cent stake in Virgin Australia.
K. Ajith, transport research director from brokerage firm UOB Kay Hian Asia, took a more cautious view.
"SIA has its hands full at the moment with investment in several airlines, which have dragged down earnings," Ajith said. "I believe a metal neutral code share agreement would be the best way to go about with regional investments."
This article originally appeared on the South China Morning Post (SCMP).
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