Singapore Airlines (SIA) has rejected suggestions that its strategy of expanding by buying into other airlines is flawed, saying it will proceed on the same path in the years ahead.
The carrier, which over the past12 months has been hurt by its exposure to substantial losses at associates Air New Zealand (ANZ) and Virgin Atlantic, says that it has no choice but to continue expanding through airline purchases as "a large carrier with a tiny home base cannot expect continuing growth and steady profits".
"The alternative of carrying on as usual, with our fortunes reliant solely on operations based in Singapore, would mean stagnation and declining returns on capital," deputy chairman and chief executive Cheong Choong Kong said in a New Year's message to staff.
"There is no denying that our mission has suffered a major setback, but we have always warned that the path to globalisation is strewn with risk. The reasons for investing in other airlines are as valid today as they were a year ago," Cheong added
SIA has been pursuing its policy of buying into other carriers for some time with limited success - but it has been criticised by analysts and shareholders alike, who argue that without management control, its fortunes are too reliant on the actions of others.
Early in 2000, it took a 49% stake in Virgin, and last year a 25% stake in ANZ. Attempts to buy into Ansett Australia, Air India, China Airlines and others in recent years have failed.
Although Virgin is a private company, and current financial statements are not available, the carrier has been suffering since the September terrorist attacks in the USA.
Cheong confirms that Virgin, which "derives over 70% of its revenue from the battered transatlantic route, is also hurting, and that we will have to share the pain".
SIA's investment in ANZ has also turned sour. Serious financial difficulties encountered in the second half of last year led to the New Zealand carrier writing down its investment in Australia's Ansett, which was then handed over to administrators.
The New Zealand government then agreed to bail out ANZ and has re-taken 82%. This rescue package diluted SIA's stake to just over 4%.
Cheong insists that, despite the setbacks, there is no requirement for abandonment of SIA's objective.
Source: Airline Business
