JETSTAR HONG KONG: INTERNATIONAL RESCUE

Ky Chow, Sky News Business Reporter

26 March 2012

Three, two, one. Low cost carriers are go.

Weeks after a deal with the financially wobbly Malaysian Airlines nose dived, Qantas' strategy to revive its struggling international operations with overseas based partnerships is back on course. The announcement of Jetstar Hong Kong, a tie up with China Eastern, follows Jetstar Japan and Jetstar Asia.

The fact it's based in Hong Kong hasn't been lost on the Transport Workers Union, who accuse Qantas of using its Australian staff to subsidise Jetstar spin offs which lie beyond the union's sphere of influence (given the massive loss suffered by the international operations, I assume the union is referring to the Frequent Flyer and Domestic businesses that are propping up the airline). Alan Joyce prefers to compare the strategy to BHP's overseas operations, brushing aside the term "offshoring" - and says the passenger flows will help other parts of Jetstar.

The TWU isn't the only bogey on Joyce's radar. Jetstar Hong Kong will compete directly with Qantas' major alliance partner, Cathay Pacific - which still refuses, at its peril, to spawn a low cost carrier. Clearly Qantas are more pleased about who's happy - which judging by the share price post announcement, includes shareholders.

For the airlines' partner, China Eastern, is the true achievement - Alan Joyce says this is the first joint venture by the Shanghai based airline with an overseas carrier (Singapore Airlines had a failed tilt). It's a relationship that could pay even more down the road - even if plans for a premium operation are grounded for now. Jetstar Hong Kong may be based in its namesake island - but there's no doubt its focus is on the grand dragon of the increasingly lucrative region - although, as one analyst has pointed out, particularly the smaller markets outside Beijing and Shanghai in China - which are still many times the size of Australia.

As for the financial statements, Joyce won't say when Jetstar Hong Kong will first turn a profit - although he did favourably compare it to the earnings multiples in its Jetstar Asia and Jetstar Japan ventures.

And at a cost of $99 million over three years - the new airline is quite easy on the balance sheet. So there's plenty left in the kitty for more expansion - but where?

Alan Joyce affirmed there are no talks under way about a premium airline - though that doesn't necessarily mean another Jetstar will be Qantas' next manoeuvre. Investors, however, will want to see more (Jetstar Hong Kong will start with just three planes) moves, and good news, before its share price climbs above the clouds.

Share your thoughts on this blog:

Comments are moderated and will not appear until they have been approved.