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Asia gets new budget airline eyeing Chinese flyers
by Staff Writers
Sydney (AFP) March 26, 2012

Australian flag carrier Qantas and China Eastern Airlines said Monday they will launch a new Hong Kong-based budget airline next year aimed at cashing in on China's booming aviation market.

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

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 percent," Jetstar's Chief Executive Bruce Buchanan said.

"Jetstar's fares will be 50 percent 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 each have an equal stake in Jetstar Hong Kong -- told the Australian Stock Exchange that the new airline would have a maximum 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.

Greater China boasts a travel market of almost 300 million passengers a year, which is forecast to grow to 450 million by 2015 as middle class spending and travel surge in the vast nation, according to Qantas.

The announcement comes little more than a fortnight after Qantas's Asian plans were dealt a blow when talks with Malaysian Airlines over a premium joint-venture Asian airline collapsed.

Qantas is instead moving to build on the successful business model of budget Jetstar, which has branded operations in Singapore, Vietnam and Japan, by boosting traffic through more affordable travel.

"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 towards the region and seeks to turn around its loss-making international arm as the global industry struggles.

While its talks with both Malaysia and Singapore on a new Asian airline failed, the plans 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.

Last month Qantas announced it would slash at least 500 jobs and cut costs after an 83 percent slump in first-half net profits.

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

"The number of Chinese people travelling internationally is growing at an incredible rate," said John Lee, chief executive of the Tourism and Transport Forum, an Australian tourism lobby group, welcoming the announcement.

"An estimated 70 million Chinese travelled overseas in 2011 and that's expected to grow to 110 million by the end of the decade as household incomes continue to rise."

Investors also welcomed the news, with Qantas's share price jumping 2.6 percent to Aus$1.775 after the announcement.

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