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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