Australian Financial Review: Singapore cagey on new Qantas airline

Australian Financial Review, May 2011

Singapore’s institutions were cagey about the prospect of a new Qantas-backed airline yesterday, while analysts raised questions both about the state’s willingness to approve such an airline and the logistics of making it work.

Singapore Airlines declined to comment, saying that it would be inappropriate to do so when Qantas itself had not confirmed the new venture. However, the airline is thought to be sanguine about the idea of increased access, feeling that it already faces intense competition from Asian or global airlines on almost every route it flies.

Changi Airport spokesman Ivan Tan said it would be “premature” to comment, saying that any application for an Air Operator Certificate would be handled by the Civil Aviation Authority of Singapore; the CAAS had not responded to phone and written inquiries by press time.

But Singapore state insiders said they did not expect any major hurdle to Qantas setting up provided that it followed the same ownership structure as applies to Jetstar Asia, in which 49% of the airline is held by Qantas and 51% by a Singaporean. It appears that the structure would be identical right down to the Singaporean partner: Jetstar’s major shareholder is Westbrook Investments Pte Ltd, which is wholly owned by Choo Teck Wong, widely known as Dennis Choo (see box), and it is understood the same vehicle would be used in the new full-service airline.

But analysts added that Singapore would likely expect something in return for an approval. “The Singapore government has said that its priority is to promote Singapore as an air hub,” said Siva Govindasamy, the Singapore-based Asia managing editor of Flightglobal Group. “A few years ago that marked a slight change in tack. While Singapore Airlines is still an important part of the strategy, it is not the main part – that is Changi [the airport].”

Consequently Singapore could be amenable to such a new airline, but approval “I think would lead to objections from airlines based here, chiefly Singapore Airlines,” Govindasamy said. “And that could lead to a quid pro quo where Singapore Airlines say: we allowed you guys to set up here, why can’t we do something in Australia?” In particular, Singapore Airlines has long coveted greater access to trans-Pacific routes.

CLSA aviation analyst Robert Bruce said “the Singapore government would be supportive of any new airlines that are going to be based out of Singapore.” He said the government’s support for new low-cost carriers over the last five years “have assisted in Singapore’s major strategic focus of growing as a tourism hub and making Changi one of the most successful airport hubs in the world.” He said Singapore is increasingly aware of the risk of losing its hub status to long-haul carriers in the Middle East, “which have developed an ability to overfly Singapore”, and that fear would fuel support of new Singapore-based airlines.

Others were less sure. “The only bit of it that’s surprising is that the Singaporeans would allow them to do it,” said Peter Harbison, chairman of the Asia Pacific Centre for Aviation, who described the method of getting in by staying under 50% ownership as “a side door”. “Allowing a flag carrier in would be quite a substantial step up in terms of the liberalisation process.” He added: “When that Qantas Asia, or whatever it’s called, aircraft is flying out of Singapore, it’s operating on Singapore bilateral rights and designated as a Singapore carrier – something that Singapore Airlines won’t like at all. The new airline will be up against Singapore Airlines in bidding for slots.”

One could also argue that the Australian government’s rejection of Singapore Exchange’s bid for the ASX could influence the Singapore state’s decision on a new airline, although the situations are different: Singapore Exchange proposed a takeover (subsequently re-aligned as a merger), while Qantas would simply be launching a business within which it is a minority shareholder. Additionally, the fact that Qantas is not state-owned removes a potential objection, as does the fact that Singapore has no equivalent to the Foreign Investment Review Board.

“They’re apples and oranges,” says someone who has worked closely in Singapore-Australia trade. “Frankly Singapore was very happy to entertain Jetstar, to get involved in it and to spin it off, because it was part of the strategy to develop Singapore as an aviation hub. And if this [new Qantas airline] is only planning on running 20 planes out of here, it’s not going to be anywhere close to competition for Singapore Airlines.” This person says the key to Singapore’s satisfaction will be “how much Singapore equity is in it. But they can always see where the long term interest is.”

BREAKOUT

Who is Dennis Choo?

When a new shareholder structure was hammered out for Jetstar Asia in 2009, Australian investors and aviation commentators became acquainted with the name of Dennis Choo. Choo Teck Wong, to give him his full Chinese name, is the owner of a Singapore company called Westbrook Investments Pte Ltd, which in the 2009 restructuring became the 51% shareholder of Newstar Investment Holdings Pte Ltd, which in turn is a holding company for Jetstar Asia.

Though Choo became chairman of the Newstar holding company in 2009, he keeps a low profile. “He’s fairly unassuming, fairly low key,” says one who knows him.

Qantas, though, has known him for years through his travel agency, Tour East Group, which was formed in Singapore in the 1970s. It has a long relationship with Qantas in Singapore, one that got closer when Tour East Australia was launched in 2007 as a joint venture with Qantas. Choo is Group Managing Director of Tour East out of Singapore. “He has been a long-serving Qantas travel agent in Singapore, and has a good relationship with Qantas build over the very long term,” says CLSA analyst Robert Bruce.

Choo will now also be a 51% shareholder in the new Qantas full service airline in Singapore; Choo’s participation as the local partner is what allows Qantas to set up, just as it was with Jetstar. It’s not clear, though, if Singaporean parties are responsible for committing all the capital to these ventures, or if the bulk of it has originated from Australia.