COMPETITION BODY FOCUSES ON AVIATION IN FIRST DECISIONS

UNCLAS SINGAPORE 000469 SIPDIS STATE PASS USTR FOR AUSTR WEISEL AND JJENSEN COMMERCE FOR JBAKER DOJ FOR SCHEMTOB SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ETRD EAIR ECON EINV SN SUBJECT: COMPETITION BODY FOCUSES ON AVIATION IN FIRST DECISIONS NOT FOR INTERNET DISTRIBUTION ¶1. (U) Summary: Two recent decisions of the Competition Commission of Singapore (CCS) brought good news to Singapore's aviation sector. The CCS announced on February 13 that it did not object to the Joint Services Agreement (JSA) between Qantas Airways and British Airways and approved on March 5 a coordination agreement between Qantas and Orangestar Holdings. While both agreements potentially contravened certain provisions of Singapore's Competition Act, the CCS ruled that they also resulted in "net economic benefits" for Singapore and were therefore excluded from the mandated prohibitions. The decisions were the CCS' first since it was established under Singapore's new Competition Act in January 2005. They also appear to reflect the GOS' strategic thinking about how to preserve Singapore's status as an aviation hub and to serve as a means to press Australia ]?/;?{P2-85bvC fare pricing, scheduling, and marketing on certain routes. The two airlines submitted their request for decision to the CCS to ensure the viability of their 1995 agreement in light of new Competition Act guidelines. At issue were the airlines' Australia-Europe and Australia-Asia-Europe flights that utilize Singapore's Changi International Airport. In making its decision, the CCS examined two sections of the Competition Act -- Section 34, which prohibits agreements that prevent, restrict or distort competition, and Section 35, which alllows anti-competitive agreements that otherwise create net economic benefits for Singapore. An attorney representing Qantas told us that the CCS selected the JSA decision as its first case based on its assessment that it would be relatively clear-cut to adjudicate and also send a positive signal to industry. (Note: The CCS has been careful to dispel any perceptions that it might become an aggressive competition watchdog by encouraging industry to self-assess and voluntarily submit requests for decision. End note.) Qantas-Orangestar -------------- ¶3. (U) Qantas and Singapore-based Orangestar submitted their request for decision concerning a proposed business and marketing coordination agreement to both the CCS and the Australian Competition and Consumer Commission (ACCC) in April 2006; the ACCC issued a positive ruling shortly thereafter. Orangestar is the holding company for Singapore-based Jetstar Asia and Valuair, two low-cost carriers. Qantas owns Australia-based Jetstar Airways and also owns 44.5 percent of Orangestar. Singapore's largest budget carrier, Tiger Airways, submitted comments to both the ACCC and CCS challenging the agreement. Singapore opened a US$29 million terminal for budget airlines in March 2006. However, only two airlines (Tiger and Cebu Pacific) currently utilize the new terminal. Observers expect the Qantas-Orangestar decision will encourage other budget carriers in the region to structure partnerships allowing them to operate out of Changi without fear of running afoul of the Competition Act. Case summaries and decisions are available at http://www.ccs.gov.sg. And the Winner is...Singapore Inc. -------------- ¶4. (SBU) The CCS' Qantas-BA decision appears unlikely to jeopardize Singapore's aviation-related government-linked corporations (GLCs). Singapore Airlines will continue to dominate the "kangaroo route" from Australia to Europe. Changi Airports International, Singapore Airport Terminal Services, and Changi International Airport Services, all closely linked to the GOS, also stand to benefit from a continued Qantas and BA presence. GLC Tiger Airways may lose customers to competitor Jetstar Airways, but the GOS will win either way since it also owns a significant stake in Jetstar through its investment arm, Temasek Holdings. (Note: Tiger Airways filed applications to operate domestically in Australia just prior to the to the CCS decisions. End note) Comment -------------- ¶5. (SBU) The CCS decisions probably represent more than just "slam dunk" rulings on competition. Singapore's promotion of itself as a low-cost carrier hub is not just directed at attracting more tourist dollars. It is also meant to address concerns that it might lose airline traffic as long-haul carriers capable of bypassing regional hubs like Changi take to the skies in coming years. Singapore also appears to be using the two decisions to take the moral high ground in its open skies discussions with Australia. Australia denied Singapore Air access to the lucrative Sydney-Los Angeles route early last year, a disappointing decision for the GOS that soured bilateral aviation relations. Last week, the former Chairman of Singapore Airlines referred to the CCS decisions during a speech at a private equity conference in Sydney, accusing the Australian government of not doing its share to "walk the talk" when it came to open skies policy -- a position that will likely be a standard GOS talking point following these decisions. HERBOLD