'Budget franchises in HK almost impossible after Jetstar denial'
Updated: 2015-08-12 09:23
By kahon chan in Hong Kong(HK Edition)
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The criteria for an airline to call Hong Kong home - advocated by the Air Transport Licensing Authority (ATLA) in its denial of Jetstar's entry into the market - will diminish the prospect of foreign airlines establishing a foothold in Hong Kong, says aviation expert Law Cheung-kwok.
Jetstar Hong Kong first emerged in 2012 as a 50-50 joint venture between Qantas of Australia and China Eastern Airlines. The stakes were split equally between the two carriers and Shun Tak Holdings in 2013. Shun Tak secured a majority on the board following the appointment of new directors in early 2014.
But owing to a package of agreements and a corporate structure that ultimately put Jetstar in control of fleet disposal, fare levels, route planning and appointment of senior executives, the application was rejected on June 25. This was for failing the requirement of "having principal place of business in Hong Kong".
Hong Kong's Basic Law stipulates that only airlines having a "principal place of business" in the SAR are entitled to licenses. Although there are already six license holders, the constitutional threshold was not elaborated until the ATLA handed down its decision in June.
Apart from the locale of key corporate decisions, the ATLA said an airline registered in Hong Kong should be run free from restrictions which would hinder the Hong Kong licensee from competing fairly in the open market with other airlines. This includes its shareholders.
The Hong Kong Jetstar management will surrender the right to determine its network and fares to the Australian office. The relevant agreements provide no freedom for the venture to break ties with Jetstar.
An ATLA member, who did not want to be identified, dismissed the idea that the decision would become a handbook for future license applicants. While certain principles were based on statutes and common law cases, the decision was also based on the circumstances of the Jetstar venture, he said.
But Law Cheung-kwok, policy director at the Chinese University of Hong Kong's Aviation Policy and Research Center, said the decision would make it almost impossible for foreign budget franchises like Malaysia's Air Asia or Singapore's Tigerair to run similar ventures in Hong Kong in future.
Even though the hurdle might put off potential competitors, Law agreed with the regulator's rationale for preventing foreign carriers from exerting full control of local airlines. He was reluctant to comment on the decision's implications for mainland-backed ventures - especially Hong Kong Airlines.
Qantas CEO Alan Joyce said last Tuesday that "different rules were applied to different carriers in different ways". The ATLA said last Wednesday that "there is no question that ATLA will protect any of the incumbent license holders by applying different sets of rules".
Hainan Airlines announced last September that it would dispose of its stakes in Hong Kong Airlines to meet compliance requirements. Secretary for Transport and Housing Anthony Cheung Bing-leung said the government only updated the framework for the designation of Hong Kong airlines early last year.
The timing was also questionable. Cheung had said in 2013 that the review began after the new administration was inaugurated in July 2012. It just happened that Jetstar Hong Kong applied for its Air Operator's Certificate, an essential document separately considered by the Civil Aviation Department, the same month.
Law said it would be up to the court to decide whether the review was unfair to Jetstar Hong Kong. But he said Jetstar's proposed business model was not mentioned in previous applications.
kahon@chinadailyhk.com
(HK Edition 08/12/2015 page10)