Virgin Australia, Singapore Airlines In Deal To Connect Flight Networks

SINGAPORE (Dow Jones)--Singapore Airlines Ltd. (C6L.SG) on Tuesday unveiled plans for a wide-ranging alliance with Virgin Australia Ltd. (VBA.AU) that would refocus its network in the region and intensify pressure on Qantas Airways Ltd. (QAN.AU).

Virgin Australia operates domestic flights and services to New Zealand and the U.S. west coast. SIA would tap in via a pact that would include coordinated schedules, code sharing and marketing ties.

The planned deal is the latest in a flurry by Virgin Australia, formerly known as Virgin Blue Holdings, which under new Chief Executive John Borghetti is using deals with overseas carriers to broaden its appeal to prized business travelers.

The airline is one of a handful to broker comprehensive deals with members of more than one of the three global alliances that dominate the industry. SIA is a member of Star, while Virgin Australia is also awaiting regulatory clearance for an enhanced pact with Delta Air Lines Inc. (DAL), a leading member of the SkyTeam grouping.

   Borghetti said at a news conference in Singapore there were no immediate plans to join   Star. 

SIA has long sought a more solid foothold in the Australian market--where it holds a minority stake in Tiger Airways--and also sees a tie with Virgin Australia providing more leverage in its pursuit of rights to fly from the continent to the U.S.

The two carriers are seeking approval for the alliance from the Australian Competition and Consumer Commission, and aim to launch it on Aug. 1.

The pact between Singapore's flag carrier and Australia's second biggest airline by market capitalization could create more competition for Qantas, which is reviewing its loss-making international flight operations. The airline declined to comment on the SIA-Virgin announcement.

Qantas is a member of Oneworld, the third global grouping, whose position in the region was enhanced this week when Malaysia Airlines said it planned to join in 2013.

Australia is a key market for SIA, which flies the Airbus A380 to Sydney and Melbourne.

Virgin Australia also has planned alliances with Air New Zealand, another Star member, as well as Abu Dhabi-based Etihad Airways.

Anti-trust regulators initially expressed concern at the proposed Virgin Australia-Air New Zealand alliance. However, the ACCC eventually allowed the deal to proceed but with strict conditions. U.S. regulators have indicated they will approve the Delta alliance after negotiations with the two airlines.

SIA expects the alliance with Virgin Australia to boost ticket sales and make the carrier more attractive to Australian customers who currently can't redeem their passenger miles for flights within the country.

The alliance will also connect Singapore's international network with Virgin Australia's network of Australian and Pacific destinations, which include Vanuatu and Tonga.

"We will be very competitive. With this cooperation, this will increase the flow of traffic even on the existing routes and beyond that we are quite certain that this will allow us to grow on existing and other routes," said Goh Choon Phong, the chief executive of Singapore Airlines.

The agreement will open up 70 new destinations to Virgin Australia customers while Singapore Airlines passengers will gain access to 30 destinations, the statement said.

Choon Phong also reiterated SIA would consider selling its 49% stake in U.K.-based Virgin Atlantic Airways.

Virgin Atlantic founder Richard Branson--who retains a controlling stake--has hired Deutsche Bank to conduct a strategic review of the carrier that has drawn interest from airlines reportedly including Delta.

A decision on Virgin Atlantic's future ownership structure is expected within three months, according to people familiar with the situation.