For a few reasons.
Jetstar rely heavily on Qantas' domestic codesharing that they wouldn't want to relocate to AVV.
They claim low cost carrier status but they don't use the low cost carrier terminal in Singapore, instead using the main terminal. They also use the aerobridges in many ports, instead of using the cheaper stand off bays.
This is just Lindsay Fox trying to get a few more pennies. He made Avalon airport prohibative for years, and has now decided he wants to make a few dollars. It is miles from the city, and has very bad transport links to anywhere. Not what your average international customer wants to deal with. He'll get a few carriers operating in there, and then jack up the prices to compare with Melbourne anyway. He is a ruthless businessman, not someone trying to do this for altruistic reasons.
After all, there is a good reason Jetstar only have 2 flights from there... because no-one is prepared to pay the extra $100 in transport it costs to get to and from Avalon compared to Melbourne. Avalon is a regional airport for Geelong, and without a good rail link (which the Victorian government will never provide... they have shown no willingness to invest in rail at all) it can never be a reasonable alternative to Melbourne.
Personally, I think that Melbourne's second airport (or third airport) will need to go on the EAST of Melbourne, where the vast majority of the population live. But Australian governments are as bad as the current CEO's... no vision past about 5 years.
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