Singapore carrier outlines strategy

SINGAPORE Airlines (SIA) is Asia's most valuable aviation stock with investors keen on the group that has won a global name for its efficient service, near-new planes and formidable route network. The carrier is also a major shareholder in Virgin Atlantic.

But despite its lustre, SIA faces plenty of challenges. Although primarily a long-haul airline, a wave of new, local discount airlines now pose a nagging threat to some of SIA's regional services. In addition the advent of super-long-range planes may mean fewer passengers choosing to ride with the State-linked carrier and transit through Changi Airport.

The government has a battle plan to deal with the changing circumstances, and SIA stock climbed 10 cents to S$11.50 today after the blueprint for change and survival was given a public airing.

Senior Minister Lee Kuan Yew, regarded by many as the father of modern Singapore, summoned SIA management and unions for a briefing on the potential problems.

The plain-speaking Lee, who was independent Singapore's first prime minister, takes a close interest in the fate of SIA since he helped the company to develop in its early years and oversaw Changi's construction.

Lee said SIA's cost structure had to be overhauled, including a revamp of wage and medical benefits. He said that some of SIA's operating units - notably its ground-handling subsidiary - could be hived off as it focused on core operations.

'There will be a different configuration of the work forces in Changi Airport and SIA' within 18 months, Lee told delegates at a meeting billed as a 'dialogue'. 'Either we wait for SIA and Changi to be under increasing pressure and eventually break down, or we carry out these changes in order to protect and expand the connectivity of the hub,' he warned.

'The easiest thing for us to do is block the competition: in other words, we block low-cost carriers from Changi,' he added. 'It will only bring about the inevitable - Changi will be bypassed and we will lose our air hub status.'

It is not clear just how much of a threat no-frills players will be to SIA, which positions itself as a premium brand. But the low-cost crowd is growing fast with Malaysia's AirAsia already flying into Changi.

SIA has plans to launch its own cut-price offshoot, Tiger Airways, later this year. In addition a Singapore start-up, ValuAir, could begin operations from the city State as soon as next month. There was also talk today that Australia's Qantas may team up with Singapore State investment arm Temasek to form a budget carrier.

SIA shares slumped last year after they were hit hard by the spread of the killer flu Sars. After sinking to a low of S$8.25, they rebounded to S$12.90 before trading at today's levels.

The rest of the market was little changed as profit-taking on counters that rose strongly yesterday offset the impact of further gains on Wall Street overnight. Chipmaker Chartered Semiconductor Manufacturing lost a cent to S$1.75. The Straits Times index gained 0.77 point to 1890.97.

Hong Kong shares played catch-up after yesterday's falls. The Hang Seng index powered ahead 141.46 points to 12,873.22, led by property giant Cheung Kong, up HK$1 to HK$68.

Japan's Nikkei Stock Average recovered from early losses to end up 121.38 points at 12,079.70.