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Jetstar aims to expand to mainland
Publication Date : 12-03-2013
China Eastern Airlines Co Ltd, one of the nation's major three carriers, may expand its joint-venture budget operation Jetstar Hong Kong to the Chinese mainland within three years.
Jetstar, a 50/50 joint venture between China Eastern and Qantas Group, Australia's national carrier, is expected to play a key part in China Eastern's finances over the coming years, said Ma Xulun, the president of the company.
"We are eyeing the mainland market within three years, around the point at which we expect Jetstar Hong Kong to become profitable," Ma, an NPC deputy from Shanghai, told China Daily on the sidelines of the annual session of the 12th National People's Congress.
China Eastern launched the partnership with Qantas in March last year, with both sides agreeing to invest up to US$198 million over three years.
An application to launch the budget carrier was approved by the Ministry of Commerce in January, according to Ma, and the fleet is ready for takeoff later this year once it obtains an operating license from Hong Kong's airlines regulatory body.
Ma said he and his Australian partners have been mulling the expansion since the start of the negotiations.
They agree the Hong Kong-based operation will test the water for further exploration into the mainland's lucrative, but largely untapped, budget airline market.
Ma said he is also hopeful that the new venture will help improve the Chinese carriers' high debt to equity ratio, which hit 78 per cent by the end of 2012.
"If all goes well, the business will help lower that figure to around 70 per cent by the end of 2015," Ma said.
Budget air travel is yet to gain a foothold in China.
Shanghai-based Spring Airlines Co Ltd remains the only existing budget carrier after Okay Airways, another private airline, quit the market eight months after its maiden flight in 2005.
China Eastern is still the only national carrier to consider a move into the sector.
Wang Changshun, chairman of Air China Ltd, said last June that it had no plans to enter the budget market, due to the tough market conditions.
Ma added that markets can generally expect a surge in domestic travel once GDP per capital reaches $3,000, and that making travel more affordable has been a long-held vision for the carrier.
But he called for more preferential policies to bolster the development of the nascent segment.
"Uncontrollable expenses, such as import duties and value-added tax on airplanes and components, jet fuel, landing and take-off fees paid to the airports, effectively cap carriers' capability to lower costs, " Ma said.