Merger of neighbouring rivals SIA and Qantas is not a good strategic move Suggestions that Australia's Qantas Airways could seek an equity alliance with Singapore Airlines (SIA) have created a buzz in the regional aviation industry. Singapore's Transport Minister Yeo Cheow Tong fed the rumour mill yesterday by suggesting the carriers were already in talks, but a deal with SIA is not the only option as Qantas ponders its future growth strategy. Australian Prime Minister John Howard set tongues wagging last week when he raised the issue of whether the two would 'remain as separate entities' but the consensus among analysts is still that a tie-up is far from being a done deal. 'All the talk came out of a whole public smoke and mirrors campaign in which people are trying to set agendas and influence policy, rather than a real suggestion of what might happen,' said Peter Harbison, director of industry analyst Centre for Asia Pacific Aviation. Reports of a Qantas-SIA deal come in the context of several highly politicised issues. The Australian cabinet is reviewing the foreign ownership limit on Qantas, which restricts overall foreign investment to a 49 per cent stake in the airline and any one strategic foreign investor to 25 per cent. Qantas chief executive Geoff Dixon added to the speculation this week when he remarked that he thought Qantas would consolidate with another airline in 'between five and 10 years' and that SIA would be a 'lovely partner'. He also said: 'So would Air New Zealand, which was taken away from us.' Qantas spent several years courting the Kiwi carrier, only for an equity alliance to be vetoed by New Zealand regulators in 2003. SIA, on the other hand, has long been Qantas' main rival in Asia, a factor that has increased the surprise at talk of any deal between the two. Arguments for the SIA tie-up hold that the recent KLM-Air France merger shows that the global airline industry must consolidate, and that it makes sense to combine two of Asia-Pacific's largest carriers. For SIA, a merger would mean access to the Pacific routes from Australia to the US. For Qantas, it would mean gaining a regional hub in Singapore and being able to compete more effectively on routes between Australia and Europe. However, Mr Harbison believes the prospects for consolidation between two Asian carriers are 'extremely low'. He says any successful alliance is likely to be 'not between neighbours, but between carriers at opposite ends of the market'. For that reason, the British Airways-Qantas alliance, in which BA held 25 per cent of Qantas after buying in back in 1993, was a good strategic move, producing mutually beneficial co-operation on the 'kangaroo routes' between Australia and Europe, and which has survived BA's divestment of its stake.