Qantas has forged a joint venture with China Eastern Airlines to create a new Hong Kong-based budget carrier.
Jetstar Hong Kong is due to start operations in 2013 with a fleet of three Airbus A320s, increasing it to 18 by 2015.
Qantas already uses the Jetstar brand to run budget services in other parts of Asia.
The expansion is in line with the Australian airline’s strategy to revive its international business.
The two companies would be equal partners in the joint venture which will have £125 million in capital.
Qantas chief executive Alan Joyce said: “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.”
Jetstar chief executive Bruce Buchanan revealed that Jetstar Hong Kong fares were expected to be “50 percent less” than existing full-service carriers.
The penetration rate of budget carriers in China is less than 5%, he added.
Hong Kong is seen as one of the Asia Pacific’s major travel hubs, with about 40 million passengers per year, while China has a market of almost 300 million passengers.