New budget airline to target China's market

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New budget airline to target China's market

New budget airline to target China's market

Monday, March 26, 2012
  • air
China Eastern to partner Qantas's Jetstar in this new venture.

SYDNEY: Australian flag carrier Qantas and China Eastern Airlines will launch a new Hong Kong-based budget airline as they move to tap into China's booming aviation market, they announced Monday.

 

The new low-cost Asian carrier, Jetstar Hong Kong, will launch in 2013 and fly short-haul routes, including in China, Japan, South Korea and Southeast Asia, the partners said in a statement.

 

The move marks a major expansion of Jetstar, Qantas's budget brand, which flies domestic Australian and Asian routes, and comes as the embattled carrier struggles to refocus on Asia, the world's fast-growing aviation market.

 

"This is a unique opportunity to capitalise on the enormous potential of the Greater China market, where the penetration of low cost carriers is less than five per cent," Jetstar's Chief Executive Bruce Buchanan said.

 

"Jetstar's fares will be 50 per cent less than existing full service carriers, which we've seen create new travel demand in our markets across Asia because it enables people to make more trips, more often."

 

Qantas and China Eastern -- which will have an equal stake in Jetstar Hong Kong -- told the Australian Stock Exchange the new airline, Hong Kong's first budget carrier, would have capitalisation of US$198 million.

 

Jetstar Hong Kong, which will be a pioneer in the China budget market, will launch with a fleet of three Airbus A320s, but will increase that number to 18 by 2015.

 

"We believe there are huge opportunities in the Jetstar low fares model throughout Asia, including Greater China," said Shanghai-based China Eastern's chairman, Liu Shaoyong.

 

The announcement of a low-cost China-focused airline comes little more than a fortnight after revelations that Qantas talks over forming a premium joint-venture Asian airline with Malaysia Airlines had collapsed.

 

Qantas is now moving to cash in on the successful business model of budget Jetstar, which also has a Japanese operation Jetstar Japan and a Vietnamese base, by slashing fares and boosting traffic.

 

"We see tremendous potential for the Qantas Group in Asia and we're looking forward to working more closely with China Eastern Airlines to deliver on it," Qantas Chief Executive Alan Joyce said.

 

Qantas in August announced plans to establish a joint-venture in Asia as it repositions itself within the world's largest airline market and seeks to turn around its loss-making international arm.

 

Singapore and Malaysia were seen as the likely bases for the new joint-venture premium airline and, until the collapse of talks, Qantas was said to have favoured Kuala Lumpur because of the lower costs involved.

 

But the mooted new Asian airline sparked a fierce domestic backlash, with Australian unions concerned the move would see jobs sent abroad.

 

The ensuing acrimony between management and unions saw Joyce ground the entire Qantas fleet in October, stranding thousands of passengers at airports around the world and digging into the airline's bottom line.

 

The airline has said that refocusing its business is crucial to its long-term survival as it struggles at a difficult time for the global industry.

 

Last month Qantas announced it would slash at least 500 jobs, cut costs and close two international routes after an 83 per cent slump in first-half net profits.

 

The new airline's base in Hong Kong gives it a China springboard and a home in one of Asia's key aviation hubs, through which around 40 million passengers pass each year.

 

Australian Tourism Minister Martin Ferguson last week highlighted China's growing tourism and transport potential, pointing out the rapid expansion of a travelling middle class and huge growth in its cities.

 

Since 1981, the share of China's population living below the poverty line had dropped from 84 per cent to just 20 per cent today, he pointed out.