Since China launched its post-Mao reforms in 1978, according to Liu Shaoyong, the first decade was about getting enough to eat, the second decade about putting clothes on your back, and the third about buying a home. With growing disposable income, this decade is about travelling. If the China Eastern Airlines chairman is right, then its joint venture with Jetstar, the low-cost arm of Qantas, could not come at a better time for both, especially for the Australian carrier.
The venture is important for China Eastern, but the $99m each side is required to put in over three years is equivalent to just 16 per cent of the Chinese carrier’s free cash flow in the 12 months to September 30. For Qantas, the outlay will add a tenth to the net US$1.1bn it spent in 2011. Yet that looks minor compared with the problem the alliance is aimed at helping Qantas to solve – geography. It may be based in Asia, the world’s fastest-growing region for air travel, but Australia is an end-of-the-line destination, not a hub. Qantas cannot afford to build the regional premium carrier, hubbed elsewhere, that it wanted. The next best thing has to be expanding Jetstar – about a quarter of Qantas’s operating income – to tap pan-Asian travel.
Jetstar Hong Kong uses the same co-financing model as in the airline’s other extensions, including Jetstar Japan last year (Japan Airlines and Mitsubishi). Numbers are on its side: no-frills travel in China was just 6 per cent of seats last year, according to the Centre for Aviation, compared with about a quarter across the region and globally. That last shows that Asia generally is hardly underserved with low-cost lines, but Jetstar is a proven, successful brand. This won’t solve Qantas’ struggles with its premium international operations. But the joint venture with China Eastern is another step in presenting an alternative vision for the Australian carrier.