However, Qantas - one of two shareholders in Jetstar - announced plans to cut 500 staff in its maintenance and engineering department on Monday. Cathay Pacific, which experienced a 'disappointing first half,' has frozen recruitment of ground staff to cut costs.

'The budget airline is a start-over because running a full-service carrier and a low-cost one require totally different approaches,' said Yang Jianhong, president of Hong Kong Express's sister airline, Hong Kong Airlines, who is overseeing the transformation of HKE. The budget airline has yet to be given a name.

Some routes flown by Hong Kong Airlines to second- and third-tier mainland cities, for example, lose money. But, Yang said, these routes could become profitable if operated under a low-cost model. Low fares would increase seat sales along with the load factor - a measure of utilisation of an airline's passenger-carrying capacity.

To increase the load factor, Yang said the budget carrier would drop first- and business-class cabins. It would negotiate with Airbus to change the configuration of some of the 30 A320s it had ordered to all-economy configurations.

The new budget carrier would start selling tickets in July and begin operations before Christmas, Yang said. It will initially fly to eight destinations in Southeast Asia, mainland China and Japan, using five to six Airbus 320s. Fleet size will be expanded to 16 A320s by 2015.

To get its licence, Jetstar HK - a joint venture between Australia's Jetstar Group, a subsidiary of Qantas, and Shanghai-based China Eastern Airlines - needs to prove that it is a truly Hong Kong-based carrier even though none of its shareholders is a Hong Kong-based company.

'We are extremely confident about the low-cost market in Hong Kong, which is significantly underserved,' said Luo Zhuping, director of China Eastern Airlines. 'The airline could achieve break-even in three years.'

25%

Budget carriers' share of the aviation market in the Asia-Pacific region

Source: Centre for Asia-Pacfic Aviation