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Thu, Jan 15, 2004 - Page 12 News List

SIA could lag as challengers rise

BLOOMBERG

Singapore Airlines Ltd, the sixth-worst performing stock in Singapore last year, may have an even rougher ride this year. Competition from a slew of startup carriers and the potential for another SARS outbreak are making investors wary of Southeast Asia's biggest airline.

Singapore Airlines and its regional unit SilkAir Pte already battle cheaper fares offered by Jakarta-based Lion Air and Malaysia's AirAsia Sdn. From this year, Singapore Airlines will compete with Singapore-based Valuair Ltd and even its own Tiger Airways, a discount airline it's setting up with Indigo Partners LLC and Irelandia Investments Ltd.

"The main overhang on Singapore Air's performance has been the low-cost carriers and what they're going to do," said Caleb Woo, who holds Singapore Airlines shares in the US$1.4 billion he helps oversee at DBS Asset Management Ltd in Singapore. "There are a lot of people who are attracted by cheaper fares. There will be some detrimental impact."

Singapore Airlines, 57 percent-owned by the government, trimmed wages and fired almost 600 workers last year, the biggest job cuts in its history.

Still, questions about whether Singapore is doing enough to remain an aviation hub were raised this month by Lee Kuan Yew (李光耀), who as prime minister for more than three decades oversaw the airline's founding in 1972.

The airline and Changi airport must cut costs "by 10 to 15 percent," Lee said in an interview with Channel NewsAsia, a unit of state-owned MediaCorp, the city's biggest broadcaster.

"If we don't have that discipline or the resolve or the wit to think of new strategies, new ways to overcome the competition, then we deserve to be sidelined," said Lee, who remains a Cabinet minister.

Investors, though, remain concerned that SARS will make a comeback, pushing tourists and business executives to curb travel and forcing airlines to scrap flights.

Forced to cut capacity by about a third, the carrier had its first-ever loss in the three months to June 30.

Singapore Airlines faces further pressure from the low-cost carriers.

Malaysia's AirAsia plans this year to start flying from Singapore, and Lion Air sells return trips from the city-state to Jakarta in Indonesia at a third of Singapore Airline's fare.

AirAsia, in a tilt at its rival's famous "Singapore Girl" advertising campaign, last month ran a full-page ad in Singapore's Streats newspaper, boasting, "There's a new girl in town. She's twice the fun and half the price."

Budget carriers are likely to win about a 4 percent share of air travel within Asia this year, said Kevin O'Connor, head of transport research at CLSA Asia Pacific Markets in Hong Kong.

"You've gone from two to five" carriers, said O'Connor. "You don't have to be very good at math to work out that's a huge increase in competition."

Things could get tougher. Richard Branson's Virgin Blue Holdings Ltd, which has gained 30 percent of Australia's domestic market, also wants to start a budget carrier in Asia, as does Thai Airways International Pcl.

Singapore Airlines is trying to stay above the fray.

"While we have an interest in the low-cost market and want to be part of its development, our focus is on being a real six-star carrier at the premium end of the market," the company said in a statement.

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