Reuters: Deals: Qantas, China Eastern Airlines to set up HK budget airline

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Qantas, China Eastern Airlines to set up HK budget airline Mar 25th 2012, 23:11 A Qantas Airbus A330-300 aircraft is parked between a Jetstar Airbus A320 (front) and a British Airways plane at Changi Airport in Singapore October 29, 2011. Credit: Reuters/Tim Chong SYDNEY | Sun Mar 25, 2012 7:11pm EDT SYDNEY (Reuters) - Australia's national carrier, Qantas (QAN.AX), has moved to expand its Asian business and cut costs by entering into an equal joint venture with China Eastern Airlines Corp Ltd (600115.SS) to set up a Hong Kong-based low-cost carrier. Qantas will enter the alliance through its low-cost unit, Jetstar, which already runs joint-venture airlines in Singapore, Japan and Vietnam and its own airline in Australia and New Zealand. Under the latest tie-up, China Eastern and Qantas will invest up to $198 million over three years, which will start in mid 2013 with three Airbus A320 aircraft, Qantas said on Monday. The fleet would then expand to 18 by 2015. "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," Qantas Chief Executive Alan Joyce said in a statement. Qantas has embarked on an Asia-focused strategy as part a five-year plan to revive its international operations, which lost over A$200 million ($210 million)in fiscal 2011. It abandoned talks with Malaysian Airlines (MASM.KL) this month on setting up an Asia-based premium airline. The parties could not agree terms, prompting investors and analysts to say the Asia strategy would now hinge more on Jetstar. Setting up airlines in Asia would let Qantas hire pilots, crew and maintenance staff at much lower costs than in Australia and offer a larger choice of connecting flights. Staff costs at Qantas stand at about 25 percent of revenue, compared with about 15 percent for its Asian competitors. Last month, the airline said it would axe 500 jobs, cut capital spending by A$700 million over two years, review and simplify maintenance operations, cut unprofitable routes and retire aircraft to protect profitability. The Jetstar brand operates up to 3,000 flights in Asia Pacific a week to almost 60 destinations, including 30 in Asia and eight in Greater China. It has said that it is on track to carry more than 20 million people in fiscal 2012. Jetstar Hong Kong would look to tap rising demand not just from Hong Kong, which caters to around 40 million passengers a year, but also from greater China - a market that Qantas says is set to see 450 million passengers by 2015. Jetstar Hong Kong would combine Jetstar group's brand management, commercial management, safety, aircraft maintenance and IT systems with China Eastern Airlines' leading position in the Chinese aviation market, Qantas added. (Reporting By Maggie Lu YueYang; Editing by Mark Bendeich) Link this Share this Digg this Email Reprints

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