Qantas sets sights on Chinese market

Qantas Airways, seeking to revive unprofitable international operations, is counting on five different airline units to win travellers in China, a country 60 times bigger than its home market.

The Australian company is forming a premium carrier in Southeast Asia and a budget venture in Japan that will give it bases closer to China, chief executive Alan Joyce said.

The two new airlines, which begin flights next year, will add to Qantas's existing operations in Vietnam, Singapore and Australia.

"There is a huge opportunity for Qantas within the Asian markets," Joyce said. Having premium and low-cost units serving China and the rest of the region was "critical," he said.

Winning sales in the world's most populous country is central to Joyce's plans to turn around overseas operations losing around A$200 million a year because of competition from Middle East carriers on routes to Europe.

Delta Air Lines and American Airlines have also added flights to China, where international air travel may grow 11 per cent a year through to 2014, according to the International Air Transport Association.

"I really think it is hard to over-estimate China's potential," said Peter Harbison, chairman of the Sydney-based CAPA Centre for Aviation. Jetstar China, Qantas's low-cost budget arm, has led the Sydney-based company's growth in China by offering flights to eight cities from its hub in Singapore.

The budget carrier's Vietnam unit also plans to add China flights, Joyce said. The main Qantas airline flies to Shanghai and Hong Kong from Australia.

Chinese services now represent more than 10 per cent of Qantas's international revenue, compared with "low single digits" five years ago, Joyce said.

Qantas plans to order as many as 110 Airbus SAS A320s, including 78 of the revamped neo version, to support the new Southeast Asia premium carrier and the Japan budget venture.

It announced the new international airlines last month alongside plans to pare flights to Europe and shed 1000 jobs in Australia.

The job cuts bolstered calls by unions for job-security agreements that would limit the airline's ability to hire specialists such as pilots for the new Asian carrier.

Qantas plans to make a decision on whether to base its new premium airline in Singapore or Kuala Lumpur within two months, Joyce said. Singapore has the advantage of a bigger business travel base, while Kuala Lumpur may offer less competition and the chance to work with Malaysian Airline System and AirAsia, he said.

Like all of the company's overseas operations, Qantas will work with a local partner on the new premium unit to get around international rules governing airline ownership.

- Bloomberg