SYDNEY - Australian flag carrier Qantas and China Eastern Airlines said yesterday that they will launch a Hong Kong-based budget airline next year aimed at cashing in on China's booming aviation market.

The low-cost Asian carrier, Jetstar Hong Kong, will fly short-haul routes, including in China, Japan, South Korea and South-east Asia, the partners announced.

The move marks a major expansion of Jetstar, Qantas' budget brand, which flies domestic Australian and Asian routes. It comes as the embattled carrier struggles to refocus on Asia, the world's fastest-growing aviation market.

"This is a unique opportunity to capitalise on the enormous potential of the Chinese market, where the penetration of low-cost carriers is less than 5 per cent," Jetstar chief executive Bruce Buchanan said.

"Jetstar's fares will be 50 per cent less than full-service carriers', which we've seen create new demand in our markets across Asia because it enables people to make more trips, more often."

Qantas and China Eastern - each will have an equal stake in Jetstar Hong Kong - told the Australian Stock Exchange that the new airline would have a maximum capitalisation of US$198 million (S$250 million).

Jetstar Hong Kong, a pioneer in the Chinese budget market, will launch with a fleet of three Airbus A320s but will increase that number to 18 by 2015.