The day after Qantas stopped flying between Hong Kong and London to divert funds into an Asia-based luxury premium carrier that it is no longer going to launch anyhow, it has entered a far bigger and much more promising field, setting up a Hong Kong-based low-fare Jetstar franchise in a joint venture with Shanghai-based China Eastern.

No one with business contacts in Hong Kong or China would be in any doubt that this is potentially a huge opportunity for Qantas, nor harbour any doubts that it is also a killing field, on which full-scale war is already under way between Hong Kong-based Cathay Pacific and every PRC airline, except Air China, which is based on Beijing and owns 17.5 % of Cathay Pacific, or Dragonair, which is 100% owned by Cathay Pacific.

Thus Jetstar Hong Kong, a 50:50 joint venture with China Eastern, aligns Qantas with the Shanghai-based carrier’s competitive conflict with Air China’s highly successful and entrenched Hong Kong investment, Cathay Pacific, and China Southern (Guangzhou) and the Hainan group, the PRC airline conglomerate that has two Hong Kong investments in full-service Hong Kong Airways and low-cost Hong Kong Express.

With all of these players determined to destroy Cathay Pacific’s grip on Hong Kong, the world’s largest capital raising market, and arguably it’s most valuable corporate air travel hub, the Qantas low-fare franchise in Asia is now well and truly in the war zone by adding a brand in the fragrant harbour to those services it already flies out of Singapore (Jetstar Asia) and within Vietnam (Jetstar Pacific) and that it will start flying in conjunction with Japan Airlines and other Japanese partners as Jetstar Japan later this year.

At this morning’s telephone media conference, the previous rhetoric from Qantas about a premium branded Asia-based carrier was absent. Qantas is sticking to what it knows, which is how to run a low-cost franchise in the fastest-growing airline segment in the world.

Qantas CEO Alan Joyce said there were emphatically no plans to pursue a premium franchise with China Eastern like the proposals that failed to get traction in Singapore or Malaysia.

The venture would cap the Qantas exposure to $US99 million for its half stake in Jetstar Hong Kong for the first three years, with services to start mid-next year, which isn’t really that much in a hemisphere where combined airline revenues run into of billions of dollars a year.

The Jetstar group CEO, Bruce Buchanan, said: “We are exporting our expertise in running dual brands as in Qantas and Jetstar, not our jobs … nor our Melbourne headquarters.”

Buchanan said Jetstar’s Singapore franchise, Jetstar Asia, already served 10 cities in China, and that Jetstar Hong Kong would be strongly complementary to those services, as well as flights into China that he anticipated would be flown by Jetstar Japan and in due course, Vietnam-based Jetstar Pacific.

He said the traffic flows generated by Jetstar Hong Kong would benefit its Japan and Singapore franchises, and “one day” probably benefit Jetstar Australia’s passenger flows.

Joyce and Buchanan spoke about the rise of the middle-class consumer in China, saying their numbers had now reached 300 million people with the desire and money to fly on a low-cost product, and Buchanan said that this market could grow to as many as 700 million qualified consumers by the end of this decade.

For Qantas watchers in Australia, today’s news is confirmation that the Jetstar franchise is where Qantas management sees its growth and future, with a brand it believes can become much larger and more profitable than Qantas can ever be.

The only problem of course is that its competitors in Asia don’t see it that way at all, and as far as Hong Kong is concerned, that fate of all of the combatants is bound up with what happens in China’s airline sector, where the notion of significant foreign control within its home markets and sphere of direct influence  is a truly alien notion.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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