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Expectations are growing that Singapore Airlines (SIA) plans to re-enter the Australian domestic market by investing in Sir Richard Branson's low-cost carrier, Virgin Blue.

Analysts have tipped SIA to take at least a 25 per cent stake in Virgin Blue as it continued to look for an alternative partner in Australia since the collapse of Ansett Australia earlier this year.

Reports this month had suggested that the carrier was in the market to buy Ansett's domestic operations from the failed carrier's administrators, along with rival bids from Emirates Airways and Dragonair.

However, all three carriers have since denied any interest.

'The costs of starting a new domestic airline in Australia are prohibitive and it is doubtful that any operation could be profitable given the dominance now of Qantas and Virgin Blue in the market,' a regional aviation analyst said.

'As such, the easiest way for SIA to get back into the Australian market is through a tie-up with Virgin Blue.'

A strong Australian code-sharing and interlining partner is important to SIA's operations as much of its international traffic comes from servicing the kangaroo route between Europe and Australia.

At the same time, SIA faces strong competition on the transcontinental route from Qantas, which also has an 80 per cent lock on the domestic market.

For Dragonair, investment in Australia could make sense only if it planned to fly a connecting service to China, something which it has given no indication of being prepared to do.

Australia accounted for nearly 10 per cent of SIA's inbound revenues to Singapore by original sale last year. If looked at by route region, Australia accounts for close to 14 per cent of airline sales.

But it is believed to have lost much of that revenue this year, when Qantas captured the lion's share of the market after the collapse of Ansett.

'It is a big problem for SIA not to have a domestic partner in Australia with which to hand-off feeder traffic,' Auckland-based UBS Warburg analyst Timothy Ross said.

'I suspect that SIA and Virgin Blue will have to tie-up.'

SIA already has a link to Virgin Blue with a 49 per cent stake in Virgin Atlantic Airways.

Earlier this month, Virgin Blue announced a code-sharing venture with United Airlines on transpacific traffic.

Equity involvement in the carrier by SIA would almost certainly be preceded by a similar code-sharing venture.

A Virgin Blue stake sale to SIA would probably be in the form of a capital injection given the low-cost carrier's aggressive expansion plans.

Last month, Patrick Corp, an Australian stevedoring and ports company, purchased 50 per cent of Virgin Blue for about A$260 million (about HK$1.15 billion).



SIA tipped to enter Australia with stake in Virgin