Source from NASDAQ

In the first move by a major Chinese airline into the budget carrier sector, China Eastern Airlines ( CEA , quote ), will join Australia’s flagship carrier, Qantas ( QAN , quote), to create a regional low-cost airline.
he firms will invest up to $198 million over three years in the equal joint venture (JV). It will commence operations in the middle of 2013 with three Airbus A320 aircraft, before the fleet is expanded to 18 aircraft by 2015.

The new venture – Jetstar Hong Kong – will allow China Eastern, the country’s third largest airline by market value, to realize its long-held ambitions to enter the no-frills low budget market, while sharing the risks and investment with Qantas. This will allow CEA to then focus on its large, growing domestic network.

Qantas abandoned talks with Malaysia Airlines ( MLYAF , quote ) earlier this month to establish a premium Asia airline.

The new deal finally opens access to China, the world’s fastest-growing airline market, and enables Qantas to take advantage of Asia’s lower operating costs as it looks to turn around its international business which lost AUD200 million ($209.13 million) in 2011.

The JV is aimed at tapping into rising demand not just from Hong Kong (which caters to around 40 million passengers a year), but also from greater China, a market that Qantas says is set to see 450 million passengers by 2015.

As it stands, only around 5-10% of Asia’s entire air traffic is provided by budget carriers, compared to around half in Australia, and a third in Europe and the United States, according to industry data.

Already, Qantas’ Jetstar offering has JVs in Singapore, Japan, and Vietnam as well as its own operations in Australia and New Zealand, in which it competes with the likes of Air Asia – Singapore Airlines’ low-cost carrier, Scoot, and Tiger Airways, also affiliated with Singapore Airlines.

Under the tie-up, Qantas will lend its brand, commercial management, maintenance and IT systems, while China Airlines will open access to burgeoning Chinese demand.

By setting up airlines in Asia, Qantas can hire pilots, crew and maintenance staff at much lower costs than in Australia (currently staff costs in its domestic market comprise 25% of revenue, compared with 15% for Asian rivals) and can offer more connecting flights.

Currently the Jetstar brand operates up to 3,000 flights a week to almost 60 destinations in the Asia Pacific region, including 30 in Asia and eight in greater China.

Qantas has stated that it is on track to carry more than 20 million people in fiscal year 2012.