Singapore Airlines (DBSVickers)

BUY; S$14.08; Price Target : 12-Month S$ 17.00

SIA signs code-share agreement with Virgin Australia

SIA has signed a code-share alliance agreement with Virgin Australia group of airlines providing access to each other's networks, coordinating schedules and pricing, engaging in joint marketing & distribution, and offering frequent flyer benefits and lounge access to each other's customers. This agreement will need to be approved by the Australian regulators.

For SIA, the code-share opens up connections to over 30 additional cities in Australia and the Pacific. SIA currently has a presence in Australia with services to Adelaide, Brisbane, Melbourne, Perth and Sydney but no access to the rest of Australia, including important business destinations for Australia's fast-growing mining industry.

According to CEO Mr Goh, the tie-up will boost SIA's corporate product in Australia and open up new options for SIA's frequent flyer members in Australia. Later on, SIA may also start to code-share on Virgin Australia's flights to the US, which may be easier to secure from the regulators than its own Australia-US flights, which the Australian regulators have thus far refused to hand out to SIA. SIA currently has more than 50% market share in Singapore-Australia routes, followed by Qantas at 26% and Emirates at 9% and this move should further consolidate its position in this market when coupled with its more aggressive expansion plan on these routes.

Overall, a mildly positive development for SIA as it will be able to enhance its service offerings further into Australia and also raises its competitiveness versus Qantas in the Asia-Australia market. Together with the recently announced low fare, mid and long haul airline, these are proactive steps taken by SIA to get back on the growth path and also fend off competition.

Maintain BUY, TP S$17.00.