Qantas Airways Ltd. (QAN) and China Eastern Airlines Corp. (670)’s Hong Kong budget carrier sold a stake in their venture to a company founded by gambling billionaire Stanley Ho, which may help pave the way for an operating license.
The low-fare carrier, called Jetstar Hong Kong, sold a 33.3 percent stake to Shun Tak Holdings (242), Sydney-based Qantas said in a statement today. Qantas and China Eastern will hold 33.3 percent each, according to the statement.
A local investor may help Jetstar Hong Kong win an operating license needed to challenge Cathay Pacific Airways Ltd. (293) in the former British colony. Failure to get the permit from authorities has delayed the venture’s operations, damping Qantas’s plan to tap travel demand in China with a discount carrier.
“This adds to the strategic partnerships we have across Asia with companies that have chosen to invest in the Jetstar brand,” Qantas Chief Executive Officer Alan Joyce said in the statement. “There is clear potential for a local low cost carrier in Hong Kong to stimulate new travel demand.”
The total capitalization of Jetstar Hong Kong remains unchanged at $198 million, Qantas said in the statement.
With the addition of the partner, Qantas group cut its initial planned equity investment to $66 million from as much as $99 million. China Eastern and Shun Tak will also contribute as much as $66 million each.
It is “good for China Eastern and Qantas to find a strong local partner,” Patrick Xu, an analyst at Barclays Plc said in an e-mail today. “They don’t have to put in much money as well.”
Qantas rose 0.7 percent to A$1.485 at close of Sydney trading. China Eastern gained 0.4 percent in Hong Kong trading, while Cathay Pacific dropped 3.8 percent, the most since May 23, to HK$14.16. Shun Tak fell 2.9 percent to HK$4.02.
The deal came two days after the local government said it won’t process any applications to start airlines in the city pending the completion of a review of its criteria for designating local carriers. Cathay Pacific is the biggest carrier based in Hong Kong.
Jetstar Hong Kong is aware of the review and is having a “positive and ongoing dialogue with the regulator,” it said yesterday.
The introduction of Shun Tak as a new shareholder will provide “excellent leveraging opportunities” to Jetstar Hong Kong, China Eastern said in a statement to Hong Kong stock exchange filing today.
Shun Tak’s biggest shareholders include companies owned by Ho’s daughters and himself. Its businesses range from property development, ferry services between Hong Kong and Macau, hotels and investment. The acquisition is a long-term strategic investment for Shun Tak, its managing director Pansy Ho said.
“We believe the model of low-cost carrier can boost economic development in the region and will have potential for development,” Ho said, adding that she has taken Jetstar and Ryanair Holdings Plc flights.
Hong Kong Express, an affiliate of Hong Kong Airlines, will convert to a low-cost model in September with five A320s, Hong Kong Air Executive Vice President Sun Jianfeng said today. The carrier will start changing the configuration of its planes into all-economy cabins this month, he said.
Hong Kong Express may have room to cut ticket prices by an average 10 percent after becoming a discount carrier, Sun said. The airline doesn’t need to apply for a new license, he said.
Jetstar Hong Kong will focus on flying to secondary Chinese cities and will have about 18 aircraft, Joyce has said.
It will offer 50 percent lower airfares on average than those by full-service carriers, Jetstar Hong Kong Chief Executive Officer Edward Lau said in February.
The budget airline aims to have its first flights by the end of this year with two Airbus SAS (EAD) A320s, China Eastern Vice Chairman Ma Xulun said in March. Jetstar Hong Kong previously aimed to start services as early as this month with three A320s. Qantas and China Eastern announced their venture in March 2012.
No budget carrier has a hub at Hong Kong Airport. Oasis Hong Kong Airlines Ltd., which operated budget long-haul flights, collapsed in 2008 after racking up losses of about HK$1 billion ($129 million) in less than two years.
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