Mar 26, 2012

Qantas launches Jetstar Hong Kong, with China Eastern

Qantas is about to announce a Jetstar Hong Kong venture in association with China Eastern, but the

Ben Sandilands — Editor of Plane Talking

Ben Sandilands

Editor of Plane Talking

Qantas is about to announce a Jetstar Hong Kong venture in association with China Eastern, but the SMH has beaten it with its own news.

A  Jetstar franchise in Hong Kong has been a determined pursuit for Jetstar group CEO Bruce Buchanan, and one in which such plans have earlier failed to sway Cathay Pacific and in turn the Hainan Group carrier Hong Kong Express, which is being relaunched as an A320 low cost carrier.

Jetstar Hong Kong joins Jetstar Asia, Jetstar Pacific (Vietnam), Jetstar New Zealand and Jetstar Japan as members of the transborder low cost carrier Jetstar franchise abroad.

The Hong Kong venture is expected to start flights early next year.  While details of the funding and equity arrangements have not yet been outlined, the expansion of the franchise has about as much direct relevance to the issue of jobs in Qantas as the expansion of a Telstra or Optus franchise in China would have on users of mobile phones in Australia.

The real debate is more likely to arise if it was proposed to fly-in and fly-out Jetstar Hong Kong pilots and cabin attendants to work on the Australian Jetstar franchise under lower cost labor agreements or non-Australian safety standards.

Hong Kong is however is, not nearly as low cost as some argue, as is also the case with Singapore. There are advantages, but they are also fragile advantages in terms of exchange rate volatility and the hot house pressure of rapidly expanding Asia economies.

Jetstar Hong Kong will face fierce resistance from Cathay Pacific, which dominates the Hong Kong market through its own brand and of that of subsidiary Dragonair, which has a strong PRC network, and in association with its part owner, Beijing based Air China.

Cathay Pacific is also embroiled in a tough competitive battle with the Hainan group, which has two Hong Kong based subsidiaries, in Hong Kong Express (a low cost format) and Hong Kong Airways (a full service format).

China Eastern, the Shanghai based Qantas group partner in Jetstar Hong Kong, has itself been locked in competitive conflict with China Southern (Guangzhou) as well as Air China (Beijing) where they overlap.  It is a situation in which uniquely China issues arise, including power struggles between different state owned or controlled entities.

There is little doubt Buchanan understands how tough Hong Kong is, given his presence in Hong Kong on many occasions over the last 18-24 months and his comments to that effect to the Hong Kong media.

Turning Jetstar Hong Kong into a profit centre is perhaps the biggest challenge the Jetstar franchise has ever faced.

This is an extract from the Qantas statement:

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17 thoughts on “Qantas launches Jetstar Hong Kong, with China Eastern

  1. R. Ockape

    “Turning Jetstar Hong Kong into a profit centre is perhaps the biggest challenge the Jetstar franchise has ever faced.”

    With a little creative accounting I’m sure it won’t be a problem.

  2. W J

    A few niggling points on the whole idea,

    1. Shenzhen Airport – the de-facto low cost hub to HKG, flights from SZX to mainland chinese cities are well below those from HKG and local people take full advantage of this as well as incoming chinese tourism (transfers from Shenzhen to Hong Kong are big business with 2 mtr stations, many coach services, car transfers about to be opened up and several border crossing points). As an example at easter I’m travelling SZX-HAK which saved 50% over HKG-HAK.

    2. HKG Runway Capacity – A 3rd runway has recently been approved for construction and there are efforts clear up the congested airspace by consolidating other airports in the region. Prime runway slots have already been jumped on by the legacy carriers.

    3. CX – As has been mentioned the relationship is poor between QF and CX – they have strong loyalty in their home market and extensive penetration with Asia Miles. They also have a head start on the whole ‘2 brand’ approach with Dragonair already operating on a lower cost base to leisure destinations whilst running an award winning service. CX also already has a mainland Chinese sponsor in Air China backing them who is unlikely to rest on their laurels whilst the CZ/JQ tie up affects their market share.

    4. Hainan Group – the so called ‘new kid on the block’ Hong Kong Airlines has been fighting for several years now bitterly for market share and credibility, it’s fares heavily undercut the major carriers to leisure and business destinations already but it is viewed with suspicion locally and is regular fodder for the tabloids with tales of customer service ‘nightmares’. Backed by the Grand China group it also has deep pockets to sustain a low fares assault.

    5. Other LCCs – 10 other LCCs operate from HKG to Asian destinations already.

  3. Ben Sandilands


    Some very important points. I’ve looked at some of these in a report already filed for the Crikey subscriber bulletin, however I will publish that here later today, as well as recognise some of the issues that might not be picked up in Australia-centric coverage, but should be.

  4. ltfisher

    I’m interested in your para 3 comments WJ especially the poor CX/QF relationship. Indicative of the situation was the choice by QF of BA for their HKG-LHR sector partner rather than CX in the recent QF route cuts. CX offers a far superior service out of HKG than BA. I guess the QF reasoning was that if a passenger was going to travel CX out of HKG to London then why would they bother travelling QF to HKG. I guess that the bottom line is that although both One World members QF is just no match for CX.

  5. ff79

    Ben, just a small but important and very relevant point to correct you: Dragonair is not PRC-based but very firmly based in Hong Kong with its head office just by the airport. Being 100% owned by CX, whose head office is also right by the airport although in a separate building, the close relationship provides a comprehensive network of KA mainland China destinations fed by CX’s international flights into HKG. KA also has a good regional Asia network out of HKG.

  6. Ben Sandilands

    Thanks ff79. Will amend as needed.

  7. michael r james

    ff79 is correct but these articles on CX and Dragonair glide over the complicated history. The article (in today’s subscriber edition) had me scratch my head when 100% ownership by CX was claimed, because I distinctly remember CX was “forced” into allowing mainland purchase of a significant stake (remember this was at the time of HK reverting to PRC sovereignty and the new airport had also created a lot of tension with the PRC who had dithered over its approval; HK boldly went ahead and built it anyway and it opened one year after the HK handover).

    So the situation was (Wikipedia): “in April 1996, when China National Aviation Corporation (CNAC) purchased 35.86 percent of Dragonair and became the largest shareholder, with Cathay Pacific and Swire retaining 25.50 percent, CITIC Pacific retaining 28.50 percent…CNAC’s holding was further increased to 43 percent when it was listed on the Hong Kong Stock Exchange on 17 December 1997.”

    But in 2006 there was a major realignment with CX buying out all other parties, and “By 2009, services to Bangkok and Tokyo; and the expansion plans to introduce services to Sydney, Seoul and the United States have been cancelled and terminated.”
    No doubt some of this was relaxation by Beijing after the HK handover had bedded down, but a lot must have had to do with both CX’s strategy for a HK-based world airline (which Beijing does not want to hinder) and of course mainland-based airlines out of their major centres, principally Shanghai and Beijing.

    This surely has some lessons to Qantas and others. CX was clearly concerned that Dragonair competing with its parent on its main international routes was a destructive strategy–to efficiency, profitability and to brand loyalty etc. I declare an interest in that I have flown CX, from Europe and now Australia, for decades. Perhaps for that reason my opinion doesn’t count but I know I will continue not to fly Qantas to HK, and of course part of my historic reason is that if I go on to Europe (or other major international destinations) I can do it, and do do it, with CX (even if Qantas did it as they used to, it would still be just to Heathrow and I am so over that). IMO, CX has an admirably clear structure–major international routes you fly CX and change at HKG to Dragonair for either PRC destinations or shorter-haul international routes such as Vietnam etc.
    As to the comments about Shenzhen, two points:
    1. maybe fair enough if you are just transiting (but then why not fly direct–certainly I see zero advantage if flying from Oz; if staying in HK then one would have to add the costs and inconvenience of getting to Shenzhen, for which you also need a PRC visa, which ok I suppose you already have if you are destined for China). However for a long international flight, say from Oz, I have no intention of flying some second or third rate cheapo like JetStar which might be just tolerable on short domestic flights–though I have never used them since there is Virgin). Finally, I would be strongly inclined to travel to China cities on HSR rather than fly. Even the overnight train from Beijing to HK is pretty good (back in 2000; I understand it is already much upgraded) and you arrive refreshed in early a.m. in HK, right in the centre of town.

    2. HKG was built on the other side of Lantau island so that it could operate 24/7 without disrupting urban population centres (I have stayed in one of those hi-rises in Tung Chung newtown directly opposite the airport and these are built for it, ie. no problem). This may have been primarily for freight (HKG is the world’s largest airport for freight) and mainlanders may be a lot less caring about disturbing their citizens but…as long-term planning goes it was excellent.

  8. Aidan Stanger

    W J, I think it would be much harder to get regulatory approval for a Chinese domestic airline that’s substantially Qantas owned than for an international airline flying into China from another jurisdiction, so you can rule out SZX and CAN. Chinese government hostility effectively rules out Taipei, so it comes down to a choice between Macau and Hong Kong. HKG is bigger and has many more connections. As you say, there are ten low cost airlines there already but still the market supports much higher fares than SZX.

  9. Sean Doyle

    @Michael R James,

    Regarding Shenzhen, I’d agree that it is not a practical alternative for Australian travellers to Hong Kong under the current PRC visa system, however given that according to Wikipedia no airline flies to SZX from Australia, this issue is largely academic at the moment. However, the European LLC experience shows that many people are willing to sacrifice a direct flight to their destination if it means a cheaper fare (e.g. FR flying to sticksville airports while claiming to fly to Paris, Dusseldorf, Frankfurt, et al). If the PRC would alter its visa rules generally or even just for SZX to allow for transfer to Hong Kong, SZX would become a lot more attractive to foreign passengers and airlines.

    As for the trains, as much as I enjoyed using them in my recent travels around China, they are definitely not a practical option for many people travelling long distances. Seat61.com for instance suggests that the train from Beijing West to Hong Kong takes nearly 24 hours. My copy of the China Railways timetable agrees with that and also suggests travel times of between 20-30 hours between Beijing and major southern cities such as Shenzhen, Guangzhou, Chengdu and Chongqing. Those times are one way only, of course. The rails may have their charm, but you’d want to be a fair trainspotter to volunteer for around 60 hours or train travel.

    China Railways mainly competes on price for these routes (fares are standardised and controlled by the government). Anyone of the growing middle class with the cash to spend or anyone travelling for business would surely fly, especially given the limited holidays available to Chinese workers.

  10. michael r james

    @Sean Doyle Posted March 27, 2012 at 2:21 am
    “European LLC experience shows that many people are willing to sacrifice a direct flight to their destination if it means a cheaper fare (e.g. FR flying to sticksville airports while claiming to fly to Paris, Dusseldorf, Frankfurt, et al).”

    Your statement can be both true and false. True in the short term in that it is the facts that plenty of travellers have taken up those cheapo airfares; but the complaints from those surprised by where the end up and the time, cost and hassle of getting to where they actually need to go strongly suggests it will not be a sustainable thing. Of course the LCC try to surf their initial success by buying back into major air hubs, but then their often marginal “cheapness” (often an illusion as many travellers discover) also suffers. Hence the immense instability of the airline industry over the past 4 decades.

    IMO Virgin (Atlantic; ie. Branson’s first air venture) set the better model: no-b.s. fares for perfectly good travel conditions. (And they were alway ahead of old competitors like BA because of their ability to access new model planes with things like seat-back video in 100% of seats years before BA; most American lines still do not have it and want to charge you $5-$10 for watching a distant ceiling suspended screen!) V have managed to make this model a success over several decades now, and without diluting their brand or confusing their patrons (and all the while avoiding the despicable loyalty systems).
    Of course I agree about the train thing, except for two things: 1. coming age of HSR and 2. most pax are not heading to Beijing (and if they are why are they not flying direct?) but to the much further south industrial centres, like Shanghai or inland like Wuhan, Chongqing, Chengdu etc.
    I won’t recount my thing about fast trains as I have written several articles for Crikey and NT. But I think your comments about train travel suggest you have not experienced HSR. In essence my argument is that lots of people will prefer HSR train travel to flight even when an (ostensible) time penalty is involved. For me I even prefer an overnighter sleeper to a short flight and overnight hotel stay (which is what lots of business types do).
    Incidentally CX is the first airline to formally link up with the European HSR network (from its Frankfurt hub I believe). So for this broad discussion, would I bet on CX getting the long-term strategy correct or current Qantas management?

  11. Ben Sandilands

    I think something else has sustained Ryanair in Europe. It has actually drastically shortened trip times between city pairs that are definitely not country towns in terms of our size perceptions in Australia.

    It has done so by avoiding the diminishing attractions of major hub airports, but LH sticks to its plan to force many of its travellers through airports like Frankfurt, even with its CRJs, that would be very useful to counter non-stop FR 738s between ‘minor’ cities with between half a million and maybe 1.5 million people.

    There is nothing more infuriating than landing at one end of Frankfurt and having to go what seems like a few kilometres and half a dozen security barriers to NOT reach your gate, but a bus, that then drives around the airport and past the point where you arrived, to find your jet, which then taxis all around the airport, if not halfway to your intended destination, before taking off on a 30 minute flight. It is totally insane and can take half a day of crammed misery, as distinct from a brief non-stop interval of crammed misery.

    Flight is about time saving as well as fares. Hahn is dead useless for Frankfurt, but it does offer fast connections to several millions of Germans that are closer to it than FRA, and who deeply resent having to schlep around FRA to get anywhere. So annoyed they have made Ryanair a thriving, large, profitable, and spatially horrid alternative to LH which is nearly as spatially horrid on a flight that takes twice as long for four times the money with FRA thrown in as a character building test.

    Stansted may not be convenient to many, but it is convenient to millions of UK residents who live in that quadrant and commute to London. Thus it is handy to those who start and finish their trips from home rather than central London.

    I think the resistance of the legacy carriers to letting go of their hub centric concepts has given some of the low cost carriers some big free kicks. When you look at easyJet’s readiness to pay the fees to use major airports, you also see significant market share in places like Geneva. And while they divide their airports in Paris, for those making short intra European flights, Orly is often a damn sight better than CDG at the Paris end of a trip. EasyJet is horrid too. But non-stop, convenient and inexpensive, but not as profitable as Ryanair. My last inter city in France on Air France was damn near as bad as Ryanair, and while I didn’t have a tape measure handy, I’m pretty sure it was within a cm or so of the Ryanair seat pitch.

    Agree with Michael about trains, even non high speed rail, for the perverse reason that while you can always get internet connectivity on a slower train, this isn’t always the case on something hurtling along at 300 kmh, sometimes deep in a ditch. Fortunately reports say these problems are being overcome.

    I use booked seat Countrylink trains to Sydney from down toward Canberra wherever possible not because they offer a great train experience, but because I can work on them (and buy breakfast) and reclaim the four or five hours I might lose driving.

    In the US we have a quality inversion. Southwest and JetBlue aren’t just different from each other, but are the higher amenity lower fare alternative to the legacy carriers unless you or your company can afford the premium products, some of which are distinctly un-premium in quality these days anyhow.

  12. michael r james

    My inner trainspotter can’t help posting this extract:
    [WHEN I told her I was planning to zigzag across her country to savour Avatar-esque countryside, ancient imperial capitals and metropolises that never sleep, my Chinese friend Nan had a morsel of advice.

    “Use eLong.net,” she beamed. “It’s amazing. Super-cheap flights. Cheaper than trains or buses, some of the time.”

    I didn’t want to be rude but I had to tell her that she was wasting her breath. I’d already decided that I was going the whole hog by rail: from Guangzhou in the south, to Qingdao in the north, with stops at Guilin, Shanghai, Xian and Beijing along the way.

    Despite the vagaries of long-haul train travel – I’d turned the air blue on occasions during previous trips across Europe, India and Vietnam – I’ve never been a big fan of flying internally, especially when you have time not to and particularly in a country such as China.
    My ticket to Guilin – some 1030 kilometres west of Guangzhou – was 215 yuan ($38) for a hard sleeper, which is ostensibly a spot in a moving six-bed dorm room with no doors. The cheapest flight I could find on eLong, incidentally, was 450 yuan.]
    [From Changsha to Guangzhou, the one-way fare in economy class for the two-hour journey, at speeds of up to 300 km per hour, is 333 renminbi ($51). That is comparable to a deeply discounted airfare …. The same trip takes nine hours on an older, diesel train. But it costs only 99 renminbi ($15).]
    I wonder if many have properly glimpsed the coming revolution in China when “High-speed track would connect all of China’s provincial capitals and cities of at least 500,000 people by 2020.”

  13. michael r james

    Ben, yes there are all sorts of reasons for using the train. In about another decade (perhaps delayed a bit by the GFC) I don’t know why people would fly internally in Europe and even for much of China, when their continent-wide networks start coalescing.
    Even business types–and though most of my travel has been for “business” as a self-funded scientist I did not have to answer to idiot managerialist types who pretend that jet-lag or simple travel fatigue do not exist, and do not value senior staff flexibility over the mentality of “getting back to the office desk a.s.a.p.” especially when the fast trains will offer a better quality working office than their home headquarters.

    So, IMO, the international airline that recognizes this and facilitates it–rather than fight it so you have to deal with multiple travel services to get what you want–will garner customers. No accident CX is a pioneer or of course that Virgin has run fast (InterCity, not HSR yet) trains London to Edinburgh for ages.

  14. michael r james

    Incidentally my few experiences of Stansted were pretty terrible. It may have changed by now. The trouble was that the train to either London or Cambridge (the airport is actually closer to Cambridge) was like a commuter service and involved lots of waiting around. It was so bad that the organizers of a conference in Cambridge had arranged limos/minibuses at regular times to pick up attendees flying in. (There are loads of trains London to Cambridge but hardly any stopped at the airport, so unlike Gatwick in which not only are there dedicated trains to London but every Brighton or southcoast bound InterCity also stops.)

  15. Sean Doyle

    @michael r james

    I have actually travelled on several examples of HSR (DB’s ICE, Eurostar, CRH) and did several trips on the slower product of China Railways as well. Indeed, the only domestic flight I did was when the trains were booked out for Chinese New Year. I enjoyed them all (although the time that the aisle was full of people blocking me from access to the toilets for 2-3 hours on my way back to Shenyang wasn’t a high point). But they’re not for everyone and they’re not always the most practical option, even in Europe. I’d be willing to pay a time penalty for train travel but I don’t think many will, particularly as the economy of China develops. One difference between train travel in China and in the Schengen Area is that in China one has to go through (what seems pretty perfunctory) security and wait in a (usually overcrowded) waiting hall , unlike when I went from Berlin to Koln, where I could just walk up to the platform a couple of minutes before the departure time and walk on as if it was a subway train. Maybe not a major thing, but it does partially neutralise an advantage rail has over air in the Schengen Area.

    Also, while it’s not much good for rail travel, I’d agree that elong (and ctrip) are excellent for flights and especially hotels. The western hotel search sites in China are mainly good for flushing your money down the toilet in my experience.

    @Ben Sandilands Posted March 27, 2012 at 2:35 pm

    Fair points, by and large. Although if the ease of use of regional version of airports is so attractive to many passengers (e.g. “Frankfurt” Hahn) then I think it would be in Ryanair et al’s interests to advertise that it isn’t flying to Frankfurt but to another place. At the very least I’d think it would be something that the relevant body that polices truth in advertising should be taking an interest in. It could turn into a bit of a “how long’s a piece of string” question, but when you’re well over 100km from the city, I think it’s pretty deceptive to call yourself “Frankfurt” airport.

    I wonder if people sucked into “Frankfurt” Hahn by the likes of Ryanair use them again on the perception of them always having the cheaper fares or if like michael r james suggests, the airport naming sleight of hand (among other factors) makes it a bit of a single use tactic for the airlines.

    Finally, would love it if HSR happened in Australia. One can always dream……

  16. michael r james

    Sean Doyle.
    I knew the instant I posted that comment, you could come back… But that’s good. I guess my thinking is really about HSR (at least if other than leisure travel) and that it is still a bit too early. However they are throwing almost $400 billion at it and every year it gets closer to a complete network.

    FYI, my articles on HSR for Oz:

    A very fast train is a model of sustainability
    MICHAEL R. JAMES March 26, 2010

    We need new fast trains … fast.
    by Michael R James Wednesday, 28 October 2009

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