China Eastern Airlines Corp Ltd has joined with Australia's Qantas to set up a regional low-cost carrier, marking the first move by a big Chinese airline into the growing but overcrowded no-frills sector. China's third-largest airline by market value and Australia's top carrier will invest up to $198 million over three years in the equal joint venture, which will start in mid-2013 with three Airbus A320 aircraft, Qantas said on Monday.
The fleet would expand to 18 aircraft by 2015, and China Eastern said it expected the venture to be profitable in its third year. "I believe this low-cost model, whether in a high or low oil price environment, will be competitive," China Eastern Chairman Liu Shaoyong told reporters in Hong Kong.
The new Jetstar Hong Kong venture would look after China Eastern's aspirations in the low-cost market while sharing the risks and investment with Qantas. This would leave the Chinese airline to focus on its big, growing domestic network. For Qantas, it brings access to China, the fastest-growing airline market, and enables it to take advantage of Asia's lower operating costs, as it looks to turn around its international business which lost A$200 million ($209 million) in 2011. Earlier this month, Qantas abandoned talks with Malaysia Airlines to set up an Asian premium airline. "This is a good move for China Eastern. They can rationalise their fleet and capacity allocation to this JV, meaning they probably won't over-invest in regional (fleets)," said Patrick Xu, analyst at Barclays Capital.
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