The Qantas-Singapore Airlines merger that almost happened...

By David Flynn, January 1 2019

As Qantas gears up to celebrate its 100th anniversary at the end of 2019, we look back to a time when the Australian flag-carrier almost merged with Singapore Airlines to create an Asia-Pacific colossus of aviation.

After British Airways offloaded its 18.25% cornerstone stake in Qantas in late 2004, the Flying Kangaroo began seeking a strategic partner closer to home – and following rebuffs from fellow Oneworld member Cathay Pacific, that gaze fell on Singapore Airlines.

It made sense for both airlines.

Qantas knew it needed a strong ally to sharpen its edge in an increasingly competitive market.

Singapore's Changi Airport was already the popular stop-over for Qantas flights to London and Frankfurt, while the Singapore Airlines hub could offer Qantas travellers scores of other onwards connections around the globe. 

For its part, Singapore Airlines had long been Australia’s most popular international airline after Qantas itself (a ranking eclipsed by Emirates only after the Qantas-Emirates alliance took wing in 2013).

As Matt O’Sullivan recounts in his book Mayday: How Warring Egos Forced Qantas Off Course, early 2005 saw Qantas’ three most senior executives – CEO Geoff Dixon, Chief Financial Officer Peter Gregg and Executive General Manager, John Borghetti – jetting to Singapore and later Bangkok (to avoid ‘galley gossip’ by suspicious Qantas crew) 'for secret meetings with their counterparts at Singapore Airlines.'

The billion-dollar play

The temporary truce between erstwhile rivals saw investment bankers diving headlong into each airline’s spreadsheets, and ‘the results were mind-blowing for both airline camps.'

'A merged airline group could lead to billions of dollars of extra benefits that neither of them could achieve by flying solo' O'Sullivan details.

'Under the plans, the airlines would form a fifty-fifty joint venture and merge their networks', although each airline’s highly-recognisable brand would remain.

Behind-the-scenes lobbying ensured that both the Australian and Singaporean governments expressed tacit support for the merger.

But Qantas’ prior success in convincing the Australian government to block Singapore Airlines from flying between Australia and the USA, and its reluctance to shutter the recently-launched and Singapore-based budget airline Jetstar Asia, made bitter tea for the Singapore Airlines executives.

And, as O’Sullivan recounts, more turbulence lay ahead.

A marriage of unequals?

'Singapore Airlines’ market capitalisation was larger than Qantas'. The Singaporeans felt, quite rightly, that they were getting the rough end of the deal from Qantas, which was pushing for a merger of equals – a fifty-fifty split.'

'The structure of a merged airline also led to the important question of who would become chairman and chief executive.'

Qantas chief Geoff Dixon wanted to remain CEO of the merged airline, but to allay concerns of Australians and Singaporeans alike – who felt a deep sense of nationalistic pride and almost ownership of their respective flag-carriers – 'the executives toyed with the idea of a dual board, each of which would have its own chairman.'

But talks stalled after less than six months, O’Sullivan writes.

'A deal that would have strengthened Qantas immeasurably had slipped through the hands of its senior executives for a bunch of reasons – too much ego from the Australians topped the list.'

'Neither side could agree on who would become chief executive of a merged airline group. The Singaporeans feared that Dixon, the wily Australian, would end up running one of their best-known companies.'

'"The moment has probably passed," Dixon said in October 2005. "There are moments in time, in all parts of your life, that sometimes things can happen and other times when they can’t."'

The postscript to this is that Singapore Airlines continues an active interest in the Australian market.

1999 saw Singapore Airlines make a $500 million pitch for control of Ansett Australia in 1999 – which Air New Zealand countered with a $680 million knock-out bid, only to see the troubled Ansett collapse like a deck of cards two years later.

In 2001 came an audacious $250 million offer for the fledgling Virgin Blue, rejected in the most public of fashion when Richard Branson tore up a mock cheque at a hastily-convened press conference at Melbourne Airport.

Today, Singapore Airlines is one of several airlines with a stake in Virgin Australia.

David
David

David Flynn

David Flynn is the Editor-in-Chief of Executive Traveller and a bit of a travel tragic with a weakness for good coffee, shopping and lychee martinis.

reeves35

reeves35

24 Aug 2011

Total posts 512

This was actually the second time SQ and QF nearly got together.  When QF was privatised, the federal government was lppking ofr a cornerstone investor in the airline.  Both BA and SQ expressed serious interest but Paul Keating went with BA, a decision which actually damaged Singapore/Australia relations at the time as the Singaporeans felt they had been excluded on cultural/racial grounds rather than financial.

Strange

Strange

Qantas - Qantas Frequent Flyer

05 Oct 2016

Total posts 25

If only they'd partnered with QR instead of EK....

moa999

moa999

Qantas - Qantas Frequent Flyer

02 Jul 2011

Total posts 1372

Not the first time a corporate deal has failed over decisions as to who would get the top job

smit0847

smit0847

30 Aug 2013

Total posts 448

Wow - this is fascinating. I had no idea all of this happened. That certainly wouldnt have been a powerhouse merger!

Mightyreds

Mightyreds

Qantas - Qantas Frequent Flyer

09 Feb 2015

Total posts 254

If only it happened....

DBPZ

DBPZ

Virgin Australia - Velocity Rewards

26 Feb 2016

Total posts 101

If it happened, we can expect SingTel to buy off Telstra and Singaustralia or Ausingapore can be better off for both countries.

kimshep

kimshep

Qantas - Qantas Frequent Flyer

11 Oct 2014

Total posts 474

Interesting article. The book is written, obviously, from Matt O'Sullivan's perspective.

My personal opinion is that the failure of the merger should be more assigned to a wide chasm of cultural difference between both airlines - rather than an issue of ego.

'Merger of Equals / Marriage of Unequals"? - perhaps a demonstration of SQ ego's? It is easy for people to forget with the more recent BA / QF proposed merger, that basic agreement of 50-50 share nearly saw this combination succeed. You can't blame QF management for pushing for 1 or 2 points more and trying to obtain 'maximum value' in a merged entity.

This cultural divide between QF and SQ was evident in the operational and administrative sides of both airlines and go to the heart - even today - of each carrier's philosophy. In-cabin service would have been a highly visible element. SQ with their sarong-clad, slightly subservient, gracious service vs. QF's fashionable, friendly forward Australian service - possibly not as 'polished' as the classic SQ but certainly not 'robotic'. Very much more 'relateable' and less distant.

At the administrative level, the differences were equally wide. QF with a worldwide reputation for safety and an unquestionable understanding of longhaul operation vs SQ and a financial backroom who's analysis (both in terms of management and route metrics / analysis would run rings around anyone else in the industry - at that time.

Potential was there for a possible alliance / merger, but for a number of reasons was not taken up. Both carriers were also foundation members of their respective global alliances - and back in those days, that alone would have played a large part in their decisions.

 The possible merger that should have gone through .. was the proposed Qantas - Air New Zealand merger, when both companies held shareholdings in each other. Identical culture, complementary routes, similar business ethic would have seen the combination of companies, retention of both brands - and better bargaining on access rights, at the time.

Given events and developments over the past 10 years, I am happy that both companies (QF and SQ) retained their independence.

 

aldrigsomandre

aldrigsomandre

Qantas - Qantas Frequent Flyer

31 Aug 2015

Total posts 126

This is genuinely the best thing I've read on AusBT in a while. Wouldn't mind seeing more articles like this. Very insightful.

A merger would have created a powerful airline indeed. Singaporeans and Australians have rather different work ethics so I don't know how this would have turned out in the long run.

Also, I am wondering, did merger mean a pan-Asian airline under a new name or was it an IAG type of deal with a holding overseeing many airline operations?

Serg

Serg

QFF

12 Apr 2013

Total posts 1446

I would rather see QF married with SQ than with Emirates. Though for QF it will not be that great because SQ serving everything from Singapore, so QF will fly only to Singapore (pretty much like now they flying only to Dubai, well almost). QF would be better off to get along with European carrier and I would vote for BA. Though it will not be equal partnership for obvious reason. To make it equal QF need to pick smaller partner and IMHO Finnair is on top of the list.

kimshep

kimshep

Qantas - Qantas Frequent Flyer

11 Oct 2014

Total posts 474

No Serg .. not for me.

You forget that SQ now holds a significant share of Virgin Australia - and may well be set to double it's ownership to almost 50%.

We moved QF from the idea of a Govt sanctioned duopoly when QF became a private, share-listed company. Thank you but we do not need SQ / Temasek / Singapore Govt trying to muscle in on more of the Australian market by taking over QF or merging with our de-facto national airline.

Similarly, I would hate to see QF eventually become a subsidiary or off-shoot of EK. Tim Clark might run Emirates well, but EK's previous experience at running other foreign associates is not stellar. Point in case: Sri Lankan

In reality, why should QF merge with anyone? It is one of the world's top 10 airlines (by a number of metrics) and is the world's oldest, continuously operated, English speaking airline. Further, it has an almost flawless safety record and an enviable understanding of longhaul and ultra-longhaul operation. It punches well above it's weight in terms of global rankings.

What it needs is superior, quality management that is not defined  purely by accountants - but by a group consisting of financial analysts, marketing strategists, operations and fleet-planning specialists as well as logistics gurus. I also think that a shake-up at the Board level to induce some new Non-Executive Directors - who actually have specific airline experience - would be beneficial.

bjt

bjt

14 Apr 2016

Total posts 2

I hope it happens. I just can't imagine a better outcome for both QF and SQ than a merger. In the age of mega carriers and carrier groups (Delta, ME3, Lufthansa, IAG, etc) QF and SQ are surely missing out on significant scale advantages and synergies. Even if a merger took place today, the combined group would still have a smaller fleet than the smallest Chinese carrier group. Go get it done already!!!

DBPZ

DBPZ

Virgin Australia - Velocity Rewards

26 Feb 2016

Total posts 101

The population in Australia and New Zealand are too small to suppport a mega carrier, and both countries are not at a premium location serving as a transit hub for other countries like SQ does.

QF and VA are straggaling to maintain profitability on non-trans-tasman international routes against their Asian competitors, which are better on squeezing every penny and have a much stronger financial background, and they are catching up very quickly on safety and service quality. Sometime I found that the only reason for choosing VA is for their status credits, otherwise I can have fly an airlines that is much cheaper yet faster (in terms of transits). The future doesn't seem bright for QF and VA.

harryonline

harryonline

Air China - Phoenix Miles

05 Jun 2015

Total posts 11

if QF and SQ merge, are they going to remain in their respective alliances?

Mal

Mal

14 Jun 2013

Total posts 360

Harry, this article is about something which almost happened over ten years ago, it's not something they are planning today. 

por930

por930

04 Jan 2014

Total posts 32

I read that book a few months ago. The Librarian said,"this book is always popular". I had to place a hold on it to eventually get a copy. The behind the scenes antics with Dixon and his crew, not to mention the infighting between different Qantas senior execs, including Joyce and Borghetti, make a great read. Worth a trip to the Library.

TomGoddardd

TomGoddardd

Qantas - Qantas Frequent Flyer

15 Dec 2014

Total posts 286

If only...

DanV

DanV

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 105

Interesting how things change in just over two years. QF is now rolling in profit, the VA group in general is (mostly) still a financial basketcase (excluding mainline domestic which to VA's credit has turned around).

Two airline shareholders in the VA group in financial troubles themselves, and one other major airline shareholder, whilst still earning a profit, is reporting a profit downturn for their group (and attributing part of the blame on VA's ongoing losses).

Also to add messy and hostile break-up with NZ, and getting closer to DL (SkyTeam) and the Chinese shareholders . Therefore putting the "*A possibilities" to an end with that ship sailing out the door (due to voting veto rights by full members including NZ) as a result of the hostile NZ breakup.

As for SQ "buying a further stake in VA", I think it's time to write that off until that actually happens. Every time a news article on that comes out (happens every 12-18 months) it always turns out to be a fizzer.

Also to add, the fact that SQ are "hands-off" in their investment in VA in favour of Vistara (India) and other carriers says it all in regards to their priority in VA.

JKH

JKH

Qantas - Qantas Frequent Flyer

23 Sep 2017

Total posts 127

This was a very good read thanks, and it has generated some very good conversation (I think the prior comment might relate to a different article!).

Please keep such articles coming!

I wonder what things would have been like if wretched Air NZ and that Rod Eddington hadn’t set things up so that SQ could have bought into the old Ansett as it had hoped to?!

mjibi

mjibi

Virgin Australia - Velocity Rewards

02 Jan 2019

Total posts 1

With the potential ‘takeover’ of Etihad by Emirates, Emirates would ‘inherit’ a stake in Virgin Australia. The ACCC would not be interested in a Qantas/Emirates agreement that included Emirates having a share in the Qantas competitor…

With Emirates and Qantas distancing themselves over the past two years, the field appears to be set for an Emirates/Virgin push against a weakened Qantas and a side-lined Air New Zealand/Singapore Airlines and their friends at Star Alliance…

kimshep

kimshep

Qantas - Qantas Frequent Flyer

11 Oct 2014

Total posts 474

.. and the alternate view would be that any change of foreign ownership in the VA share registry would require prior approval of the ACCC before such a hypothetical 'merger / takeover' between EY / EK could occur.

Given that the QF/EK joint JVA has been in operation for approx. 6 years (renewed last year for a further 5 years), it is entirely possible that the ACCC could theoretically order EK (in the case of such a merger / takeover) to divest their entire inherited shareholding in VA to a third unrelated party.

The precedent is already established with QF having to meticulously watch its foreign investment shareholding to ensure that the 49.9% limit is not broached. In that case, it's an automatic 'last on' (the share registry), automatically and no questions, first off.

DanV

DanV

Qantas - Qantas Frequent Flyer

04 Nov 2017

Total posts 105

Also to add, EK haven't been traditionally known for taking stakes in other airlines, but rather forming codeshares and JVs with "strategic" partners. Similar to AS in America.

If a EK/EY merger/takeover did happen, I would assume that EK would want to get rid of the inherited VA/9W stakes ASAP.

Considering both carriers are unaligned with a mixture of partners (Codeshare and JVs) from across the 3 major alliances, it'll be interesting who would be interested in EY's stakes in the two carriers.

Timmy22bc

Timmy22bc

18 Oct 2015

Total posts 34

Classic QF executive!

anthony watts

anthony watts

Qantas - Qantas Frequent Flyer

29 Mar 2015

Total posts 78

What intrigues me more is the obvious enmity, long standing enmity between Qantas and Cathay. Both established by Austrlians, both havingconsidrable numbers of Australian pilots; a strong alliance there seems natural....

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