April 20, 2004

Qantas's Singapore fling

Qantas' move into the busy South-East Asia budget air lanes may be $50m well spent or a one-way ticket to shareholder strife

by Eric Ellis

If he wants JetStar Asia to get off the ground, Geoff Dixon had better hope Singaporeans have short memories - and that's before any consideration about whether the $50m budget start-up can make any money in South-East Asia's increasingly crowded skies.

When the government-owned Singapore Airlines (SIA) muscled in on a strategic stake in Air New Zealand in mid-2001, this is what the feisty Qantas chief had to say: "I think people have got to realise that all these investments are not single entities in Singapore, they're the Singapore government! It is the Singapore government we're selling our assets to, the Singapore government! [They] transcend commercial considerations ... [they have] imperialistic tendencies!"

He may have been right, but Dixon's outburst seemed beyond the mere rough and tumble of business. And there remain many Singapore Inc grandees who blame him for the trans-Tasman squeeze that sent the Ansett-Air NZ alliance crashing - a failure that cost SIA, which owned 35% of Air NZ, some $500m.

But here was Dixon last week, not just rubbing shoulders with the very Singaporeans he was bagging three years ago, but planning to go into business with them, as well as two well-connected locals whose track record includes launching a Burmese carrier in a joint venture with its brutal junta.

So what's changed? For starters, the arrival of no less than four budget carriers intending to fly out of Singapore, two of which are part-owned by the same government-owned company, Temasek Holdings, that Dixon wants to join forces with; the same Temasek that controls SIA.

But what the Singaporeans can't deliver are guaranteed profits. JetStar will take off into a market very excited about the rise of Kuala Lumpur-based Air Asia, a Ryanair-Virgin Blue hybrid that just three years after its own $50m start-up is heading for a $1bn float. Passengers can shuttle from KL to Penang (think Sydney-Melbourne) for as low as $5, or Singapore-Bangkok for just $60.