Australia's Qantas Group and China Eastern Airlines have agreed to launch a new budget carrier for the Chinese market.

The carrier, Jetstar Hong Kong, will be the first low-cost airline based in Hong Kong, according to Qantas.

Jetstar already runs budget airline services in other parts of Asia.

The expansion is in line with Qantas' strategy to revive its international business.

Increasing competition

Jetstar Hong Kong will start operation in 2013 with a fleet of three Airbus A320s, increasing it to 18 by 2015.

The two companies would be equal partners in the joint venture which will have $198m (£125m) in capital.

"We see tremendous potential for the Qantas Group in Asia and we are looking forward to working more closely with China Eastern Airlines to deliver on it," Alan Joyce, Qantas' chief executive officer said.

The Jetstar Group is owned by Qantas, which is hoping to tap into a growing market after seeing its international business suffer from increased competition.

Market potential

Bruce Buchanan, the chief executive officer of Jetstar, said he expected fares on Jetstar Hong Kong to be '50 percent less" than existing full service carriers.

According to Mr Buchanan the penetration rate of low cost carriers in China is less than 5 percent.

Jetstar said Hong Kong is one of the Asia Pacific's major travel hubs, seeing about 40 million passengers per year, while China has a market of almost 300 million passengers.

Meanwhile, Qantas has said it will close some international routes and cut almost 500 jobs.

Qantas said China Eastern Airlines is China's second largest airline in terms of passengers carried.

The joint venture is subject to regulatory approval.

Source :bbc.co.uk