Singapore Airlines (SIA) has re-stated its plans to continue buying into foreign airlines, despite troubles at associates Air New Zealand (ANZ) and Virgin Atlantic, which threaten to drag the carrier into its first-ever year in the red.
SIA's deputy chairman and chief executive Cheong Choong Kong told employees: "Carrying on as usual would mean stagnation and declining returns on capital. A large carrier with a tiny home base cannot expect continuing growth and steady profits. The reasons for investing in other airlines are as valid today as a year ago."
The Singaporean carrier's strategy of buying into other airlines has been criticised by some analysts and shareholders. Early in 2000, it took a 49% stake in Virgin, and last year a 25% stake in ANZ. While Virgin brought profits to SIA in the year ended 31 March 2001, it has since been suffering, particularly following 11 September. Cheong concedes that Virgin, which "derives over 70% of its revenue from the battered transatlantic route, is hurting, and we will have to share the pain".
SIA's 2001 investment in ANZ nosedived after the New Zealand airline's financial difficulties led to renationalisation, leaving the state with 82%, and diluting SIA's holding to just over 4%. SIA has already lost hundreds of millions of dollars from its involvement with ANZ.
Cheong insists that, despite the ANZ and Virgin setbacks, "none requires abandonment of our objective". SIA reported an 88% drop in first-half net profit late last year, and warned of a loss for the year ending 31 March 2002, which would be the first in its history.
Although some analysts claim to see signs of a recovery in traffic, Cheong says that "convincing signs have yet to emerge".
Source: Flight International
