SINGAPORE (Reuters) --Singapore Airlines Ltd's defensive decision to launch a budget carrier could cannibalize its own market and sets the stage for a bloody fight with budget rivals, analysts said.
Asia's largest carrier by market value has teamed up with the founder of Irish discount airline Ryanair, Europe's biggest carrier by value, to launch Tiger Airways next year.
"The trick for these operators will be to see who will be the last man standing," said Christopher Gee, a strategist at JP Morgan and Chase.
"Tiger Airways has four shareholders who are very deep pocketed and they have more access to capital than any other operator out there."
Tiger would be the second start up in the city-state, competing head on with ValuAir, set up by former staff of Singapore Airlines. Upstart Malaysian discount airline Air Asia is also pushing for business among Singapore's four million people.
Singapore Airlines shares fell 0.8 percent on Wednesday to S$11.80. The stock has risen 16 percent since the start of the year, lagging a 27 percent rise in the benchmark Straits Times Index.
"The move was expected. But their choice of partners shows they are going out there to make some money from this venture," Gee said. "I think the market is going to give them the benefit of the doubt in this."
Shares in Asiatravel.com Holdings, which holds a stake in ValuAir, fell nearly 10 percent to S$0.50.
Singapore Airlines will hold 49 percent of Tiger Airways. State investment agency Temasek Holdings will have 11 percent, the investment vehicle of Ryanair founder Tony Ryan will have 16 percent and Texas financier David Bonderman and former America West head William Franke will have 24 percent through Indigo Partners LLC.
Goldman Sachs analyst Jean Louis Morisot said he was concerned Tiger Airways would compete with Singapore Airlines, that it was difficult to achieve low costs in Singapore and that the new alliance left an uncertain role for Singapore Airlines' existing regional carrier, SilkAir.
The Singapore Airlines budget move follows a similar initiative by regional rival Qantas Airways Ltd, which will launch a low-cost airline next May in the face of competition from Richard Branson's Virgin Blue.
Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
