Jetstar to Enter Lucrative Hong Kong Market

Low-fare air carrier Jetstar Group is to further enhance its Asian penetration with the formation of a new Hong Kong-based venture in partnership with Chinese carrier China Eastern Airlines. The Jetstar Group, controlled by Australian flag carrier Qantas Airways, already has a strong presence in the region with activities in Australia and New Zealand through Jetstar Airways; in Singapore with its expanding Jetstar Asia venture; in Vietnam through Jetstar Pacific and from July 2012 in the emerging Japanese low-cost sector through Jetstar Japan.

The proposed new venture, Jetstar Hong Kong, will be the first low-cost carrier to be based at Hong Kong International Airport, and according to the business partners will combine their local knowledge, networks into a successful low-cost model to service short-haul routes in Asia, including destinations in Greater China, Japan, South Korea and South East Asia.

Subject to regulatory approval, Jetstar Hong Kong services will inaugurate operations in 2013 with an initial fleet of three Airbus A320s, but it has ambitious plans to grow to 18 aircraft by 2015. The start-up will be backed by a maximum capitalisation of up to US$198 million with its ownership being split equally between Qantas Group and China Eastern Airlines.

“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, China Eastern Airlines at a special press event to mark the new partnership. "Cooperation with Qantas Group is a key step in China Eastern Airlines’ international expansion strategy and an excellent opportunity for China Eastern Airlines to develop low-cost carrier operations to complement its existing business model.

Qantas Group Chief Executive Officer, Mr Alan Joyce, said the new agreement would build a strong platform for accessing the world’s largest, fastest growing and most profitable aviation market. “We see tremendous potential for the Qantas Group in Asia. Establishing Jetstar Hong Kong in the heart of Asia and on the doorstep of mainland China is a historic opportunity to continue the successful expansion of the Jetstar brand in this region,” he said.

There is currently only a very limited low-cost penetration in China and the new venture will aim to take advantage of its base location to expand in the country. It will also likely further stimulate the tourism industry in Hong Kong and the country’s wider economy due to its low-fare policy. However, its arrival is unlikely to impact the existing operations of China Eastern and Qantas in Hong Kong as the venture has proved in Australia that both a premium and low-cost brand can co-exist.

Hong Kong is one of the Asia Pacific’s major travel hubs, with around 40 million passengers a year and a population base of around 7 million. Greater China has a travel market of almost 300 million passengers per annum, forecast to grow to 450 million by 2015, according to Jetstar Group.

The table above highlights weekly scheduled air capacity from Hong Kong for next month and shows that local carrier Cathay Pacific Airways dominates the market with a 35.8 per cent share of capacity, followed by fellow Hong Kong-based ventures Dragonair (14.0 per cent) and Hong Kong Airlines (5.1 per cent). Taiwanese carrier China Airlines is currently the largest foreign operator from Hong Kong by available seats with a 4.4 per cent share, while China Eastern Airlines is the largest carrier from Mainland China with a 2.5 per cent share of the weekly capacity.

All but two of the top ten airlines at Hong Kong International Airport have increased year-on-year weekly capacity versus 2011 with total available seats up 4.3 per cent on last year. Hong Kong Airlines is the fastest growing operator following significant network expansion over the past 12 months, although Thai Airways International, Cathay Pacific Airways and Air China are all growing faster than the market average. China Eastern Airlines has seen the largest decline in available seats during the two periods with weekly capacity down by around a fifth.