SIA's Virgin raps British Airways, Qantas

Virgin Atlantic, jointly owned by Singapore Airlines and Richard Branson, has been quick to attack the proposed merger of British Airways and Qantas.

 Virgin Atlantic chief executive Steve Ridgway said, “One day it’s Iberia, then it’s American, and now Qantas. The only strategy BA seems to have is to lock-up some of the busiest routes in the world, against the consumer interest”.

Singapore Airlines (SIA) has a 49 percent stake in Virgin Atlantic, which competes with British Airways (BA) on the transatlantic route. SIA competes with Qantas.

World's largest airline

BA has also been discussing a merger with Iberia, the Spanish national carrier, and hopes to expand its alliance with American Airlines. If it merges with Qantas as well, the combination of the four would create the world's largest airline capable of carrying 198 million passengers a year -– nearly six times BA’s current traffic, says The Times.

The Times says a BA-Qantas deal would deliver nearly half of the Heathrow-to-Sydney market -- and more. BA chief executive Willie Walsh said: “If we put our network together, we can feed passengers to one another and get to destinations that we cannot get to alone. Together we can serve a much larger part of the globe.”

This may push Qantas’ Asian rivals to seek deals with Europe’s other flag carriers, Lufthansa and Air France-KLM, says the Financial Times.

A BA-Qantas merger would create a carrier on par with American Airlines, which has almost $23 billion in annual revenue, and larger than UAL Corp., parent of United Airlines, which has sales of $20 billion, reports Bloomberg. SIA's revenue for the year ended on March 31, 2008, was 15.9 billion Singapore dollars ($10.4 billion), according to Wikipedia, where the entry -- from its sheer detail -- seems to have been edited by SIA staff.

BA had a fleet of 245 aircraft as of Sept. 30, according to its website. Qantas had more than 220, adds Bloomberg. SIA has a fleet of 101 with 71 more planes ordered to be built, according to Wikipedia.

BA bought a quarter share in Qantas when the Australian carrier was privatised in 1993 but sold out in 2004, says The Times. But they can swap passengers on flights to Australia.

Proposed merger driven by worries

The Australian says:

A merger would address worries in Qantas that airlines such as Emirates and Singapore Airlines, with hubs at the centre of busy international routes, have a competitive advantage, and BA fears it is being left behind by mergers in Europe, such as that of the powerful Air France-KLM group.

But it points out even if there is a deal -- and that's a long way off -- "these sorts of partnerships can be fraught with problems. Singapore Airlines has had a bumpy ride as a result of its 49 per cent investment in Virgin Atlantic."

Legal hurdles (but they are being eased)

The Financial Times says:

The biggest legal hurdle to a Qantas-British Airways merger is an Australian rule preventing any single foreign investor from owning more than 25 per cent of the Australian carrier and all foreigners together from owning more than 35 per cent.

But the Australian government is considering raising both limits to 49 per cent to promote consolidation as the sector struggles with global recession.

Qantas is discussing a merger with British Airways because international trade treaties and new long-haul planes have made it easier for foreign airlines to open routes to Australia.

This is threatening to loosen Qantas’ grip on its home region, says the Financial Times.

Qantas wants to be part of a bigger airline, and BA is the most logical choice, given the cultural ties, say analysts.

It would give Qantas a real heavy base in Europe and give BA a nice toehold into the growing Asian market.

One company, two brands

To win Australian approval, a combined company would almost certainly have to be structured as two legal entities, with separate shareholders and separate boards. One would be listed in Australia and the other in London but they would have a single integrated management team and some directors would sit on both boards, says the Financial Times.

Qantas and BA would continue as separate brands and operate as separate airlines to retain landing rights in countries outside their home markets. KLM continued to operate as a separate national airline after its deal with Air France for similar reasons.

Airline consolidation has only taken place to date within single regions such as the Air France takeover of KLM of the Netherlands in Europe and this year the Delta Air Lines takeover of Northwest Airlines in the US.

2003 Qantas-SIA talks "that went nowhere"

The Sydney Morning Herald says:

Qantas and SIA held talks in 2003 that went nowhere. It is believed that SIA was concerned that any proposed merger had a high chance of being blocked by the Australian Competition and Consumer Commission (ACCC).

The ACCC might regard a tie-up of Qantas and Singapore problematic because the merged carrier would dominate routes from Australia to Singapore (where Qantas has its largest overseas hub), Europe, the United States and South Africa. The merged entity would also control about 43 per cent of the international capacity into Australia.

Cathay Pacific has been cited as a possible partner for the flying kangaroo, but the Hong Kong airline is now focused on its expansion into mainland China. It is also thought that bad blood has been flowing between the two carriers for several years. There has also been talk for years that Qantas and American Airlines could team up.

Qantas has a maintenance joint venture with Malaysia Airlines, but any tie-up is believed to be fraught with difficulties.

There was more consolation for Qantas yesterday when the Minister for Transport, Anthony Albanese, said he planned to continue barring SIA from the Los Angeles route.