SIA, Qantas jostle for air space

Singapore Airlines made a net profit of $883 million in the year to March 2001

By CNN's Geoff Hiscock, Asia business editor

SYDNEY, Australia (CNN) -- Only Singapore Airlines and Qantas Airways look to have the financial muscle to take advantage of market opportunities that might arise from the troubles afflicting regional rivals such as Air New Zealand and Thai Airways International.

Figures from Air Transport World show Singapore Airlines and Qantas are among the most profitable airlines in the world, ranked third and 12th last year.

They also rate highly in the crucial measure of revenue per passenger kilometre (RPKs), with Qantas ranked 12th and SIA 13th in the world.

This comes at a time when both the International Air Transport Association and the Association of Asia-Pacific Airlines say that passenger growth is slowing and load factors are down from last year.

SIA made a record $883 million in the year to March 2001, up from $742 million a year earlier. Qantas made $216 million in the year to June 2001, down from a healthy $312 million the previous year.

Cathay Pacific, the world's fourth most profitable airline with a net profit of $641 million last year, has since been hard hit by strike action. Its net profit for the six months to June 2001 dropped 40 percent to about $170 million.

'Difficult and challenging year'

Qantas has outpaced Ansett in the race for market share domestically in Australia

Qantas, too, has seen its profits slide, dipping 20 percent this year in what its chief executive, Geoff Dixon, calls "a difficult and challenging year" brought about by the global economic slowdown, high jet fuel prices, increased competition and a weak Australian dollar.

Three weeks ago, Qantas reported its net profit for the year to June 2001 was about $216 million.

Still, that hasn't stopped Qantas joining SIA among the Asia-Pacific launch customers for the Airbus A380-800, the double-decker super-jumbo that Airbus is using in a bid to win more market share from Boeing.

Qantas has ordered 12 of the aircraft, while SIA has ordered 10.

With the big Japanese carriers Japan Airlines and All Nippon focused on their domestic markets and Cathay Pacific beset by industrial action, it is not surprising that the names of SIA and Qantas come up whenever there is discussion of takeovers and strategic alliances in the Asia-Pacific aviation market.

Virgin the wild card

As always, the wild card is Richard Branson's Virgin brand name. Branson has set up Virgin Blue in Australia, while Virgin Atlantic has SIA as a 49 percent stake holder.

The markets of most interest to SIA and Qantas have been Australia/New Zealand, India, Thailand and Malaysia.

But India's political reluctance to embrace foreign investors in its privatization of Air India effectively forced SIA to withdraw its joint bid with the Tata Group.

On September 1, SIA announced that it was pulling out, saying it was "surprised" by the intensity of opposition to it from political groups, trade unions and the media.

Regional rivalries in Southeast Asia also rule out a meaningful role for SIA in a Thai Airways restructure or a linkage with Malaysian Airlines.

Frontrunners to be Thai's strategic partner in 2002 are United, Lufthansa and Scandinavian Airlines, with SIA an outside chance at best.

That means only the Australasian market is likely to deliver immediate results.

SIA already has a 25 percent stake in Air New Zealand and wants more -- but only on terms that don't cripple it in its ongoing battle with Qantas.

Ansett dragging down Air New Zealand

Air New Zealand's sickly subsidiary, Australian domestic airline Ansett, has proved a deadweight since the Kiwi carrier bought another 50 percent of it last year for about $300 million.

Ironically, Air NZ used its pre-emptive right as a half-owner at the time to beat off the only other suitor: Singapore Airlines.

Now SIA looks like it might pick up the Ansett remnants very cheaply.

Whatever the outcome, Qantas -- which itself is 25 percent owned by British Airways -- also looks set to benefit. It has beaten off the challenge from Ansett for an equal share of the domestic Australian market and now looks unassailable at home.

From level pegging with Qantas in the 1990s, Ansett has slipped to a 39 percent share after the entry of Virgin Blue and the short-lived Impulse Airlines, which was snapped up by Qantas after it ran out of funds earlier this year.

Desperate offers go nowhere

An increasingly desperate Air New Zealand offered both to buy Virgin Blue and sell Ansett to Qantas in recent days.

Not surprisingly, both offers were rejected. Virgin Blue now shapes as the main rival for Qantas in the Australian domestic market.unless someone works a miracle with Ansett.

The other reality is that the attempts to resuscitate Thai Airways, Air India or Air New Zealand are comparative sideshows to the main aviation battles being fought in Europe and the U.S.

The big U.S. carriers United, American and Delta dominate the revenue rankings, because of the importance of their domestic markets. Three other U.S. carriers -- Northwest, Continental and USAirways -- are in the top 10, along with three European flag carriers -- British Airways, Lufthansa and Air France.

The lone Asia-based member of the top 10 is Japan Airlines, which ranks 10th by RPKs and also by profitability.