Breathing space for Joyce but locals won't make life easy
THREE weeks after finally ditching plans for a premium airline in Asia, Qantas's boss, Alan Joyce, has won a reprieve from investors on edge about the company's direction.
The inking of a deal to form a budget offshoot in Hong Kong, in partnership with China Eastern, gives Joyce much-needed breathing space. It also helps bolster his long-term aim of tapping China, the jewel in the crown of the world's fastest-growing regional market.
Unveiling the 50:50 joint venture yesterday, Joyce was keen to emphasise the importance of Jetstar having first-mover advantage on the doorstep of mainland China.
Securing China's second-largest airline as an equity partner is no small feat in a country where the only airline to make significant inroads is Cathay Pacific through its links with Air China.
But in the notoriously volatile aviation industry, turning Jetstar Hong Kong into a profitable enterprise and using it as a launch pad for entering the domestic travel market in China will be a tough assignment.
Qantas and Jetstar, the airline Joyce ran until 2008, risk inciting the formidable strength of Cathay Pacific and its offshoot, Dragonair, which can be sure to defend its home turf aggressively.
History shows airlines have found Hong Kong akin to a battleground. Remember Oasis, the budget Hong Kong airline that collapsed four years ago with losses of almost $HK1 billion ($123.1 million)?
Although Cathay has not shown interest in entering the low-cost travel market, it now has every reason to turn Dragonair, which operates the same A320 planes as Jetstar, into a fully-fledged low-cost offshoot.
Then there's Hong Kong Express, the offshoot of Chinese-backed Hong Kong Airlines, which will be reshaped as a low-cost airline later this year.
High airport charges and labour costs have long been a deterrent to airlines considering Hong Kong as a base for a budget carrier.
Of course, the bigger prize is the chance to fly domestic routes in China, something foreign airlines are banking on to become possible through joint ventures with Chinese partners within the next decade.
As growth slows to a canter outside of Asia, they are pinning their hopes on the Chinese government replicating a gradual opening up of aviation markets in countries such as Japan.
The question is whether Qantas and Jetstar run the risk of handing China Eastern the know-how to set up a low-cost airline, only to find their Chinese partners replicating the model on their own on the mainland.
Joyce obviously thinks it is all worth the risk. With a key plank of his strategy to turn around the fortunes of Qantas's premium international airlines consigned to the bottom drawer, the push into Hong Kong demonstrates the Flying Kangaroo's fortunes will rest firmly on Jetstar.