Unleash Singapore Air on the Pacific

This means that 862,000 of the current Australian passengers flying to Los Angeles would benefit from lower fares. The lower airfares is estimated to generate a total benefit (which economists call consumer surplus) to Australians of about $564 million.

Trade in services

Around 167,000 additional Australians will head overseas and 98,000 additional US residents will visit Australia. The money spent by Australians in the US is essentially an import (a travel service debit to be technical) and that spent by US residents in Australia is an export (a travel service credit).

If both Aussie and US residents spend the same amount of money, which is about $3,305 (excluding international airfares) then Australia's trade and services deficit will worsen by $228 million. This is bad for Australia.

While the trade and services deficit worsens by $228 million the Aussie consumer is better off by $564 million because of cheaper airfares. The maths is therefore favourable for the Singapore-based airline.

And this is likely to be the worst time to do the maths from a Singapore Airlines perspective.

If the maths was based on a 2001 mix of outbound and inbound passengers, where Australians travelling to the US represented just 40 per cent of passengers (rather than 63 per cent), Australia's trade in goods and services would be significantly better off and the business case that would be put to the Australian government would be far more favourable.

Capacity pull-out

Another potential adverse impact of Singapore entry is that the incumbent carriers cut-back on capacity or pull-out of the route altogether.

This outcome has certainly occurred in the past, with American carriers like Continental, Northwest and American Airlines pulling out of the route. It would seem, however, that the benefits are so significant to the Australian consumer that this outweighs the risk of capacity pull-out.

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