Australia’s recent decision to shelve Singapore’s request for transpacific flights has led to official musings that Qantas and Singapore Airlines (SIA) could one day merge.

Singapore has long sought an open skies bilateral that would allow SIA to fly to the USA from Australia. Initially the Australian government resisted on the grounds that the airline industry was too unstable. More recently it argued that Qantas needed more fifth freedoms from Singapore to Europe to match the transpacific fifth freedoms SIA would gain.

But the debate took a new turn after SIA presented the results of a study that claimed Australia would benefit from SIA flying the Pacific route. Qantas reacted by complaining that it could not compete in a deregulated market because government-owned or supported airlines enjoy unfair advantages. Qantas produced a long list of Australian policies it claims put it at a disadvantage, ranging from taxes and war risk insurance to security costs, airport fees and foreign ownership caps.

This new argument convinced a divided Australian government cabinet to delay granting SIA any rights until Canberra had a chance to review the policy issues raised by Qantas. Critics claim this is a pretext to protect Qantas because all these issues have been reviewed before, but talk has turned to the biggest of these issues: foreign caps. Under Australian law one foreign airline may own no more than 25% of Qantas; all foreign airlines are limited to 35%; and all foreign investors to 49%. Qantas has tried several times to change this.

Canberra’s agreement to revisit this in the context of SIA’s request has prompted talk of a possible merger between the two airlines. Australian trade minister Mark Vaile raised it first, saying he would back a Qantas-SIA merger because this “is the direction international aviation is moving”.

Prime Minister John Howard admits he has also mentioned merger with his Singapore counterpart, Lee Hsien Loong. Singapore transport minister Yeo Cheow Tong adds that the two airlines should keep all options open – including consolidation. He says Singapore’s government is willing to dilute its SIA ownership to facilitate a merger.

Singapore’s prime minister says SIA and Qantas are talking, but Geoff Dixon, Qantas chief executive, dismisses a merger as “hypothetical”. Yet, he predicts that within five to 10 years Qantas “will be in some association with another carrier”, although it would not willingly be a “junior partner”.

SIA chief executive Chew Choon Seng says talk of a Qantas merger reminds him “of being told I was going to get married and I didn’t know about it”.


Source: Airline Business