China Eastern, Qantas To Launch Hong Kong-based Budget Airline

On Monday, China Eastern Airlines and Qantas, the Australian national carrier, officially launched its Hong Kong-based budget airline joint venture. 

 

Qantas hopes to expand its Asian business with China Eastern through its low-cost offshoot, Jetstar, which is already involved in joint-venture airlines in Singapore, Japan, Vietnam, as well as in Australia and New Zealand.

 

Both China Eastern and Qantas will invest up to $198-million US dollars over three years in a 50/50 partnership. 

 

Jetstar Hong Kong plans to take off in mid 2013 with three Airbus A320 aircraft, increasing to 18 by 2015.

 

Qantas CEO said his company wants to tap into the lucrative Asian market.

 

[Alan Joyce, Qantas CEO]: 

"The Asian market is the fastest growing and most profitable and a market, which we think we can bring Australian expertise to. And we believe this is a great new story for Australia.” 

 

The Asian-focused policy is part of Qantas’ five-year plan to revitalize its international operations, which made a loss of over $210-million US dollars last year. 

 

Jetstar Hong Kong plans to cater to about 40 million passengers a year—not just from Hong Kong but also from mainland China—a market Qantas expects to clinch 450 million passengers by 2015.

 

[Bruce Buchanan, Jetstar Group CEO]: 

"We see tremendous market opportunity, we see a huge, huge burgeoning middle class looking for the opportunity to travel. And the wonderful thing about this is that it's about developing a new market. It's about stimulating a market that otherwise wouldn't have travelled, to travel for the first time and making air travel affordable to everyone."

 

China Eastern Airlines—one of the three biggest airline in China—expects the joint venture to be profitable.

 

[Liu Shaoyong, China Eastern Chairman]: 

"In 2015, we will have 18 aircraft and each aircraft will carry 200,000 people a year. It is not a high ratio, but we hope in the third year we'll become profitable."

 

Setting up airlines in Asia will help Qantas to reduce its operating costs. It will enable Qantas to employ pilots, crew, and maintenance staff at much lower costs than in Australia. 

 

Currently, Qantas staff cost is about 25 percent of revenue, whereas it’s about 15 percent for its Asian competitors.