Fasten your seat belts – Singapore Inc is moving into Shanghai. The parties are expected to announce this week that Singapore’s government investment arm, Temasek Holdings, is teaming with Singapore Airlines (SIA) to take a 25% stake in China Eastern Airlines. While there are risks for SIA (China Eastern is still a standout loss-making airline in a region where profitability has been prevalent and has a long way to go to restructure into an efficient operation), there are also major opportunities.
"Beyond the immediate combination of a world leading airline with an emerging major, the deal is also set to trigger further reforms of the Chinese and North Asian aviation markets. It is here that the real treasure lies for SIA. For China, this offers the prospect of accelerating the unlocking of what is still a closed market – for example the US negotiators recently returned home with scant returns for their bilateral liberalisation plans", said the Centre for Asia Pacific Aviation's Executive Chairman, Peter Harbison.
"But with China Eastern’s future apparently bedded down, the CAAC is now more likely to revive its ‘open skies’ plans for Shanghai Pudong, possibly within 12 months of the SIA-China Eastern deal going through – first for cargo, and quickly followed by passenger markets.
"And with Pudong’s capacity for an additional 40 million passengers coming online within this timeframe, the CAAC has the necessary ingredients to liberalise Shanghai’s skies, to make it a dominant hub for North Asia", he said.
Like SIA’s Changi base, Pudong is Shanghai’s international gateway, with domestic operations mostly handled by Hongqiao Airport on the western side of Shanghai. SIA is therefore a good partner to help develop Pudong as the ‘Changi of the North’.
Last year’s momentous Cathay Pacific/Air China combination similarly opened up opportunities for each airline’s home airports also to cooperate; although not much has yet happened in that respect, there is a thread for the future.
"And, importantly, a hub role scenario for Shanghai will require a liberal framework in order to flourish. The Chinese market will become so large that it should support two substantial hubs, at Beijing and Shanghai – and indeed this offers the possibility of a subtly different bilateral strategy for the two airports and their main carriers", said Mr Harbison.
‘Open skies’ at Pudong would also suit the establishment of LCC operations, according the Centre.
"There are many local operations which would leap at the chance – and Tiger Airways (which is jointly controlled by SIA and Temasek) should not be forgotten in the mix. Shanghai is within three hours flight time of Japan, Korea and parts of Southeast Asia. The potential for expansion of the low cost point-to-point market is immense – and would be highly valuable for Pudong", he said.
"Once Singapore Inc sets up in Shanghai there is likely to be more to watch than just the central characters", concluded Mr Harbison.
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About Centre for Asia Pacific Aviation
The Centre for Asia Pacific Aviation (CAPA) was founded in 1990 and has since built an international reputation as the leading specialist aviation consultancy in the Asia Pacific, the Indian Subcontinent and Middle East regions. CAPA Consulting’s strategic advisory services are supported by the extensive information and data services provided by the Centre’s Market Research Unit to aviation industry leaders every day. The Centre also holds regular Aviation Leadership Summits, which provide unique opportunities for the exchange of ideas and experiences.
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