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Cablegate: Competition Body Focuses On Aviation in First Decisions

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RR RUEHWEB

DE RUEHGP #0469/01 0670933
ZNR UUUUU ZZH
R 080933Z MAR 07
FM AMEMBASSY SINGAPORE
TO RUEHC/SECSTATE WASHDC 2596
INFO RUCPDOC/USDOC WASHDC
RUEAWJL/DEPT OF JUSTICE WASHINGTON DC
RUEHBY/AMEMBASSY CANBERRA 1858

UNCLAS SINGAPORE 000469

SIPDIS

STATE PASS USTR FOR AUSTR WEISEL AND JJENSEN
COMMERCE FOR JBAKER
DOJ FOR SCHEMTOB

SENSITIVE
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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

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