Why A Shenzhen Airlines, SIA Tie-Up Makes Sense

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If Singapore Airlines is serious about building its presence in China and having a network in China comparable to Cathay Pacific Airways, then one avenue it may want to look at is buying a large minority stake in a mainland Chinese carrier. SIA a few years ago, tried to buy into China Eastern Airlines, but the deal was later blocked by the authorities, following intense lobbying by Air China.

The fact that Li Jiaxiang, who was head of Air China at the time, is now chief of the Civil Aviation Administration of China, means SIA is unlikely to ever get regulatory approval to have a sizable stake in Air China, China Eastern Airlines or China Southern Airlines. But maybe the CAAC would be willing to let SIA have an equity stake in and help manage one of China’s smaller carriers? A perfect candidate for SIA would be its Star Alliance partner Shenzhen Airlines.

Shenzhen Airlines serves 65 destinations in China and is located in southern China. That is a good location because it means SIA could operate to Shenzhen city and have its passengers connect onto a Shenzhen Airlines flight without the passengers having to backtrack. The city of Shenzhen is also right on the border with Hong Kong, Cathay’s home market. Presently, SIA group only serves around 10 cities in China, far fewer than Cathay. Getting access to Shenzhen Airlines’ network would give it a big fillip.

Shenzhen Airlines is controlled by Air China, another Star Alliance carrier. So Air China needs to be won over.

Interestingly, SIA’s CEO, Goh Choon Phong, was in Shenzhen yesterday to attend a Star Alliance event welcoming Shenzhen Airlines’ official entry into the alliance. Aviation Week’s Brad Perrett spoke to Goh on the sidelines of the event and asked him about the potential of Shenzhen Airlines as a gateway for SIA into China. Brad sent me text message to say Goh “was not greatly excited by the idea”.

But Goh is also the sort of person that likes to play his cards close to his chest. Even if he were feverishly trying to stitch up an equity deal with Shenzhen Airlines, he is hardly the sort of person who is going to publicize it, until it’s well and untruly a done deal.

The other issue SIA faces is that Air China’s partner is Cathay. Air China owns a sizable equity stake in the Hong Kong carrier. Goh knows that any moves he makes to woo Air China has to be done on the quiet, for if Cathay gets wind of it, Cathay will do everything in its powers to scotch the deal.

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