The expanded air services agreement, inked in London on Tuesday, is the first of its kind for Britain.

To kick in at the end of March, it will even allow SIA to start a base in Britain, from where it can run services within the country, in direct competition with home-base carriers like British Airways.

The existing Singapore-British air deal allows SIA to fly as often as it wants to any point in the country, but it cannot pick up domestic passengers. Under this deal, SIA flies thrice daily to London and thrice weekly to Manchester from Singapore.

With the new deal, the Singapore carrier will be able to fly from Singapore to London, where it can pick up domestic passengers and fly onward to other key domestic destinations such as Manchester and Edinburgh.

Similar rights out of Singapore have been given to British airlines under this deal.

Industry watchers, however, say the trans-Atlantic route - the London-New York leg, for example - is the plum prize. SIA had clearly seen this market's potential when it took a 49 per cent stake in Virgin Atlantic.

Announcing the liberalisation of the Singapore-British air deal in a statement yesterday, the Transport Ministry noted that the United Arab Emirates was the only other country with which Singapore had such an unrestricted deal.

Transport Minister and Second Minister for Foreign Affairs Raymond Lim called it a 'trail-blazing agreement' signed between two sides that believed in 'free competition in the aviation sector'.

SIA welcomed the expanded air deal, which would allow it to 'grow its operations to, through and beyond the United Kingdom', said its spokesman, Stephen Forshaw.

But while the potential for SIA was enormous, air travellers were unlikely to gain much in the short term, analysts noted.

The first limitation lies in the seat crunch. The number of passengers has outstripped airlines' ability to make seats available, so even if SIA wanted to mount more flights to Britain, it would not have enough planes to do so now, said aviation analyst Vincent Ng, an associate director of Standard & Poor's Equity Research.

The second limitation, Mr Ng said, lies in the physical capacity of London's Heathrow Airport.

Also, SIA's short-term focus is in growing its presence in Asia, especially in China, where it is close to acquiring a stake in China Eastern Airlines, analysts said.

But such operational constraints do not dim the significance of the air agreement.

Mr Forshaw, describing Britain as one of the tightest regulators of air services, said: 'This is a real step forward for the airline industry; the UK has seen the very real benefits of opening markets to full competition.'

Taking a dig at Australia, which has for decades turned down Singapore's request to operate flights between Sydney and Los Angeles, he said: 'If the UK can say yes to liberalisation, surely Australia can do it as well.'

With more countries opening up their skies, some observers hope that consumers in restricted markets would pressure their governments to allow more competition.

But Mr Ng is not as sanguine.

His reason? 'History has shown that this has never been at the expense of their national carriers,' he said.

A lot of 'horse-trading' goes on behind closed doors, and air deals are inked only when both sides are satisfied that they can walk away with enough goodies, he added.

karam@sph.com.sg