April 9 (Bloomberg) -- Qantas Airways Ltd. expects to get approvals to start a budget carrier out of Hong Kong by the end of the year as Australia’s biggest airline seeks to tap travel demand in China with its low-fare unit Jetstar.
Jetstar Hong Kong, set up in partnership with China Eastern Airlines Corp., will focus on flying to secondary Chinese cities, Qantas Chief Executive Officer Alan Joyce said in a Bloomberg Television interview at the Boao Forum in Hainan, southern China on April 7. The airline will have about 18 aircraft, he said.
The first Hong Kong-based budget airline will help Qantas challenge Cathay Pacific Airways Ltd. for passengers in the financial hub as Joyce tries to turn around unprofitable international operations. Airlines in China carried 319 million people last year, a number Jetstar had previously predicted would more than double to 800 million by 2020.
“We’ve a successful model with Jetstar out of Singapore going into a lot of secondary cities in China and we think that’s where the focus of this expansion with China will go,” Joyce said. “The scale of such cities are massive, and there is huge population, and a huge potential to get people there.”
No budget carrier has a hub at Hong Kong Airport. Hong Kong Express, an affiliate of Hong Kong Airlines, has said it will convert to a low-cost model. 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.
Qantas and Singapore Airlines Ltd. are among carriers that have started low-fare airlines to tap the boom in air travel amid economic growth in China, India and Southeast Asia. Singapore Airlines started Scoot and is the largest investor in Tiger Airways Holdings Ltd. Scoot and Tiger both fly to China.
“China is a very important market for the group,” Joyce said. Qantas has expanded its China operations, he said.
Shares at the Sydney-based airline rose 0.9 percent to A$1.75 as of 2:02 in the city. The stock has gained 17 percent this year, compared with a 3.8 percent decline in the Bloomberg Asia Pacific Airlines Index.
The carrier said in February it reduced losses at its international unit by 65 percent in the six months ended December after dropping unprofitable routes and retiring older planes. Qantas’s first-half net income more than doubled to A$111 million after it took cash from canceling orders for Boeing Co. 787 jets.
Qantas would likely take delivery of the first of its 787 Dreamliner airplanes in September, Joyce said during the interview. Even so the airline would work with U.S. and Australian regulators to ensure the plane is safe for use before putting the aircraft in the air, he said. Dreamliners have been grounded since mid-January.
Qantas said earlier this month Europe bookings rose six-fold as an alliance with Emirates reduces flight times between the continents. The agreement with the Dubai-based airline cuts average journey times by more than two hours from Melbourne and Sydney to the top 10 destinations in Europe.
Bearish bets on Qantas fell to an all-time low on optimism an alliance with Emirates and cost cutting will return the carrier to profitability after its first loss in at least 17 years. The ratio of outstanding puts to sell Qantas shares versus calls to buy dropped to 0.2881-to-1 on March 28, the lowest on record, according to data compiled by Bloomberg.
The credit rating for Australia’s biggest carrier’s was cut to the lowest investment grade by Standard & Poor’s in September, citing “structural pressures” on international routes.
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