Qantas Airways Ltd, Australia's largest carrier, said it will set up a Singapore-based budget carrier with the city's state-owned investment agency Temasek Holdings Ltd to fly between Asian destinations.
Qantas will own a 49.9-percent controlling stake in the unnamed S$100 million (US$59.5 million) carrier, chief executive officer Geoff Dixon said in a press release. Temasek, the biggest shareholder of Singapore Airlines Ltd, will own 19 percent of the new airline.
"Qantas will be entering an incredibly competitive market, where there will be other low-cost carriers," said Tim Ross, a Hong Kong-based analyst at UBS Securities Ltd.
The investment by Qantas and Temasek, announced a day after Singapore's former prime minister Lee Kuan Yew said Singapore Airlines must tackle new challenges, adds another competitor to the city's two low-cost carriers. Besides the unnamed budget airline, Tiger Airways and Valuair Ltd also fly from Singapore.
The new carrier will start flying before the end of this year with four single-aisle aircraft and aims to have more than 20 planes in its fleet within three years, Dixon said in his statement. Its aircraft will either be Boeing Co's 737-800 models or the A320 planes made by Airbus SAS, Dixon said.
The carrier plans to serve destinations within five hours of flying time from Singapore, Dixon said, without identifying its first route. Asia-Pacific destinations within five hours from Singapore include Bali, Bangkok, Colombo, Hanoi, Hong Kong, Jakarta, Kuala Lumpur, Manila, Mumbai, New Delhi and Western Australia's Perth.
The remaining stakes in the unnamed airline will be shared by two Singapore-based businessmen, Dixon said in his press release. Tony Chew will own 21.1 percent of the carrier while F.F. Wong owns 10 percent, the press release said.
"For Singapore Airlines, this is going to create more uncertainty on its domestic front, which will hurt its share prices," said Kenneth Tang, who helps manage US$3 billion at Credit Agricole Asset Management Asia Ltd, which owns shares in both Qantas and Singapore Airlines.
Singapore Airlines, the world's second-largest carrier by market value, already has its own budget airline, Tiger Airways.
Tiger, 49 percent owned by Singapore Airlines, competes with Valuair and Malaysia's AirAsia Sdn.
Tiger, in which Temasek also owns shares, plans to start flights in the fourth quarter and has announced plans to lease four new Airbus SAS A320 aircraft. Valuair has also leased two Airbus A320 planes.
AirAsia's Thai unit has started flights between Bangkok and Singapore, and is awaiting regulatory approval for a low-cost carrier venture based in Singapore.
"This is a modest investment for Qantas but it is an excellent opportunity to participate in the growing intra-Asia travel market," Dixon said in the press statement. The investment in Singapore won't affect the Australian carrier's plan to tie up with air New Zealand, Dixon said, without giving more details.
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