Qantas, China Eastern Launch Low-Cost Hong Kong Airline

Qantas Airways Ltd. and China Eastern Airlines Corp. are teaming up to launch Hong Kong's first budget airline in a bid to cash in on the fast-growing Chinese aviation market.

Jetstar Hong Kong, which will be 50 percent owned by both airlines and capitalized at $198 million, will begin passenger flights in mid-2013 with three Airbus A320 aircraft, eventually building to 18 of the aircraft by 2015, Qantas said.

The move marks a major expansion of Jetstar, Qantas's budget brand, which flies domestic Australian and Asian routes. Jetstar Hong Kong will be the sixth regional airline in the Jetstar family. It will service short-haul routes in Greater China, Japan, South Korea and Southeast Asia.

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, said Liu Shaoyong, chairman of China Eastern Airlines, the nation's second largest airline.

As the first low-cost carrier based in Hong Kong and only the second based in Greater China, the new airline should quickly gain a large market share, said Bruce Buchanan, CEO at Jetstar Group.

This is a unique opportunity to capitalize on the enormous potential of the Greater China market, where the penetration of low-cost carriers is less than five percent, 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, Buchanan added.

Greater China has a travel market of almost 300 million passengers a year, and that is forecast to grow to 450 million by 2015. The penetration rate of low-cost carriers is less than 5 percent, according to Qantas.

In its annual report Sunday, China Eastern Airlines said revenue for 2011 was 84 billion yuan ($13 billion), up 12 percent from a year earlier. Net profit was 4.9 billion yuan, a decline of 9 percent.

Last month, Qantas said it would cut at least 500 jobs to reduce cost after reporting an 83 percent slump in first-half net profits.

Shares in state-controlled carrier China Eastern Airlines (HKG:0670) fell 1.14 percent in Hong Kong and 1.53 percent in Shanghai Monday.

Qantas Airways Ltd. (ASX:QAN) shares closed up 2 percent, outperforming the wider market.