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  Volume: XXIV, Issue No. 05 October 16-31, 2014  
     
 
   
 
   
  AVIATION
  Singapore Airlines focusing on Asia
 
 
  Untitled Document
-A Monitor Report
Singapore : Singapore Airlines' sale of its 49-per cent stake in Virgin Atlantic will allow the cash-rich Asian carrier to focus resources on its fast-growing regional market, analysts said.
The Singapore carrier's tie-up with British billionaire Richard Branson's Virgin Atlantic never really took off since the alliance began 12 years ago when the stake was bought for 600 million pounds (S$966.5 million).
Singapore Airlines (SIA) on said recently it will sell the stake to Delta Air Lines of the United States for US$360 million in cash in a deal to be completed next year.
SIA said it "had been evaluating strategic options for the stake for some time, as the investment has not performed to expectations and the synergies the parties originally hoped for have not materialised.''
Analysts said SIA, consistently one of the world's most profitable airlines, had little say in how Virgin Atlantic was run by the flamboyant Branson, and the sale allows it to exit an underperforming investment in the troubled European market.
"SIA can now focus on investments in the Asia Pacific region,'' Brendan Sobie, a Singapore-based analyst with industry consultancy Centre for Aviation said.
Analysts said SIA's decision to buy the stake in Virgin Atlantic in March 2000 was a good move at the time because Asia was just emerging from a devastating financial crisis in 1997 and 1998.
But the centre of global economic power has since shifted to Asia, with the region's travel market now booming because of the rise of an affluent middle class and the emergence of budget airlines.
Passenger traffic in the Asia Pacific is forecast to account for 33 per cent of the global market in 2016, up from 29 per cent in 2011, according to trade body International Air Transport Association (IATA).
Sobie said it made more sense for Delta to have a strategic stake in Virgin Atlantic as there are more synergies in their trans-Atlantic network rather than with an Asian carrier.
Jason Hughes, an analyst with IG Markets Singapore, said that despite the higher acquisition price paid by SIA, the US$360 million "will go down as a profit, as losses had already been accounted for in previous years''.
Shukor Yusof, an aviation analyst with Standard and Poor's Equity Research, said SIA can use the extra cash to "redefine its business strategy on top of beefing up its regional subsidiaries.''
"It's also good to exit out of Europe because the market conditions there are quite atrocious,'' he said. "The sale frees up a stake which SIA has been bogged down with.''
Shukor said conflicting management styles with Branson was one of the chief reasons why the alliance failed to prosper beyond a code-sharing agreement.
"Branson remained the controlling shareholder and he called the shots,'' he said.
   
 
 
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