Qantas will set up a new low-cost carrier (LCC) in Hong Kong through a joint venture with China Eastern Airlines.

The alliance will be done through the Australian carrier's low-cost arm, Jetstar.

Jetstar Hong Kong will service short routes in Asia including greater China, Japan, South Korea and Southeast Asia.

The carrier is targeted to launch in 2013 with a fleet of three Airbus A320s, subject to regulatory approval. The two carriers also aim to grow Jetstar Hong Kong's fleet to 18 by 2015.

Both carriers will pump a total of $198 million into this joint venture, each holding an equal percentage share. The maximum exposure for each carrier is $99 million over a three-year period.

Jetstar's CEO Bruce Buchanan believes the new carrier, the first LCC to be based in Hong Kong, will trigger new travel demand and also capitalise on the "enormous potential" of the greater China market where the penetration rate of LCCs is less than 5%.

"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. This will also apply to Jetstar Hong Kong, which will leverage on the local knowledge and scale of China Eastern Airlines with the successful low-cost model of Jetstar," says Qantas' CEO Alan Joyce.

Jetstar Hong Kong will tap on the Jetstar group's resources including brand and commercial management, safety, aircraft maintenance and IT systems with China Eastern Airlines' leading position in the Chinese aviation market, says Ma Xulun, vice-chairman and president of China Eastern Airlines.

The new carrier also signals Qantas' move to expand its Asian business. The carrier last year announced a five-year plan to tackle challenges in its international business and to focus more on Asia because of strong growth in the region.

Part of the plan was to set up a premium carrier in Asia, but Qantas announced earlier this month that it has ceased discussions with Malaysia Airlines because both parties were unable to reach mutually agreeable commercial terms.

Source: Air Transport Intelligence news