(SIA) wants to gain a stronger foothold in China, emulating its recent expansion into secondary markets in Australia through its partnership with .
“We are actively pursuing partnership opportunities in China and parts of Southeast Asia,” CEO Goh Choon Phong said during a briefing yesterday in Singapore.
Industry sources tell Aviation Week that China is the market Goh is eyeing most closely.
SIA in 2007 tried to buy a 24% stake in, but vehemently opposed the deal, which ultimately failed to gain approval from Chinese authorities. One avenue SIA could take is to form a closer partnership with Air China, which, like SIA, is a member of the . There are only four major airlines in China—Air China, , China Eastern Airlines and Hainan Airlines—because in recent years most of the smaller carriers have either closed or merged with one of the big four airline groups.
In a separate development, SIA recently signed a deal to buy 10% of Virgin Australia; however, this equity purchase is still subject to regulatory approval. Goh says owning a stake in Virgin Australia helps cement the relationship that already exists between the two carriers. “Australia is a very important market for us. We intend to have 124 weekly services into Australia by the end of this financial year,” he says. SIA already serves nearly all Australian capitals. But Goh says, “Within Australia there are many secondary points, so to be effective and to provide the consumer with connectivity,” SIA needs help from Virgin Australia. SIA and Virgin Australia code-share on several routes.
SIA, meanwhile, has been using SilkAir to reach secondary cities in China, such as Chongqing and Kunming. SilkAir operates 22-family aircraft and will receive two more next fiscal year and at least 54 in 2014-2021. SIA’s fiscal year starts April 1.
SilkAir’s narrowbodies, however, lack the range to serve northern China, so SIA group has been using its medium-haul, low-cost carrier Scoot to reach secondary cities in northeastern China, namely Tianjin, Qingdao and Shenyang. Scoot operates four-200s. SIA, however, disclosed at yesterday’s briefing that Scoot will not add more aircraft until 2014, when it expects delivery of the first of 20 .
The 787s originally were ordered for SIA mainline. The fact that SIA is transferring the 20 787s on order to Scoot explains why SIA last month ordered 20 additional Airbus-900s for the mainline operation, increasing the total number of A350-900s on order to 40. First deliveries are planned in 2015.
Goh says the 787’s greater fuel efficiency will enable Scoot to better compete with other medium-haul, low-cost carriers., for example, operates -300s and has Airbus A350-900s on order. Goh says, “The 787 with the kind of capacity and configuration that it has, we decided it was best suited to Scoot. The A350 has greater capacity, so it’s better suited to SIA mainline with its [premium] positioning in terms of product.”
The airline, in its latest Airbus deal, also exercised options for five more Airbusand persuaded Airbus to buy back its five Airbus -500s. Because the A340-500 sale is part of a bigger deal for A380s and A350s, SIA may have received a good price from Airbus for the unwanted A340s. If that is the case, SIA will have avoided a big write-down on its books like the one that happened in the first half of this fiscal year. SIA says its operating profit increased in the first half by S$8 million ($6.5 million), but its net profit still fell 30% to S$168 million, partly because it took a S$67 million loss on disposal of aircraft. The disposals included -400 passenger aircraft, which have fallen in value because of high fuel prices.