CORRECT: Qantas, China Eastern Launch Hong Kong Carrier
March 25 2012 - 10:40PM
Dow Jones News
Hong Kong will soon get a low-cost carrier, with Australia's
Qantas Airways Ltd. (QAN.AU) and China Eastern Airlines Corp.
(0670.HK) forming a joint venture to corner the fast-growing
Chinese market.
Jetstar Hong Kong plans to start flying midway through next year
with three Airbus A320 planes, growing to 18 by 2015, both
companies said in a joint statement Monday.
The initiative comes as Qantas continues its strategy of
expanding outside its home market to reduce costs and position
itself better geographically to tap growth in the fast growing
economies of Asia. In the five years to 2014, the number of people
flying in Asia is expected to rise by 360 million to one billion,
according to the International Air Transport Association.
Greater China has a travel market of almost 300 million
passengers a year, forecast to grow to 450 million by 2015, and the
penetration rate of low-cost carriers is less than 5%, according to
Qantas.
Shares in the Australian flag carrier rose 2.6% in early trade
on the Australian Securities Exchange, offsetting recent
disappointment caused by its failure to create a new premium joint
venture with Malaysian Airline System Bhd after talks broke
down.
"This is a positive decision by management, given the latent
growth potential of Greater China, as well as gaining an
early-mover advantage with only one other official low-cost carrier
in China - Spring Airlines," analysts at Macquarie said in a client
note.
Qantas has also brought its low-cost Jetstar brand to Japan,
Singapore and Vietnam through other joint ventures with regional
carriers. Executives from the airline declined to comment Monday on
when they expect Jetstar Hong Kong to turn a profit.
"We know from our experience with Jetstar in Australia and in
the setup of Jetstar Japan the benefits of both a premium and a
low-cost airline operating in the same market," Chief Executive
Alan Joyce said.
Jetstar Hong Kong will have a maximum capitalization of up to
US$198 million and service short haul routes in Asia, including
China, Japan, South Korea and South East Asia. The venture will
have to overcome Hong Kong's high airport fees, among cost
pressures recently cited by Cathay Pacific Airways for not
establishing a budget offshoot in its home market.
Joyce acknowledged in a press conference that Hong Kong has high
infrastructure costs, but added that airport fees are also high in
other markets served by Jetstar including Australia and Japan. By
offering fares 50% below existing full service carriers, Joyce said
the venture could "stimulate huge growth" in the market. A
competitive advantage would also come from efficient utilization of
aircraft and labor and effective online distribution, he said.
China is attempting to take some steam out of its export and
infrastructure-driven economy, forecasting national economic growth
of 7.5% next year compared with previous forecasts of 8%. To be
sure, China's growth rate remains relatively high and a rebalancing
of its economy towards more domestic-driven demand will benefit
companies offering products and services to a ballooning Chinese
middle-class.
"We believe there are huge opportunities for the Jetstar low
fares model throughout Asia, including Greater China, and are
excited to be the first major Chinese carrier to bring this travel
option to the region," China Eastern Chairman Liu Shaoyong said in
a statement.
-By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692;
Ross.Kelly@dowjones.com
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