Joyce says Jetstar HK rejection serves vested interests

written by australianaviation.com.au | June 26, 2015
Qantas chief executive Alan Joyce launching the new business seat.
Qantas chief executive Alan Joyce.

Qantas chief executive Alan Joyce says the decision to reject an operating licence for Jetstar Hong Kong (JHK) serves the vested interests of those already flying and leaves the travelling public worse off.

Hong Kong’s Air Transport Licensing Authority has knocked back Jetstar Hong Kong’s application to fly, leaving the proposed low-cost carrier facing an uncertain future.

The ATLA said although there was “no dispute” the day-to-day management of the airline would be conducted in Hong Kong and managed by a local chief executive, that was not sufficient to establish and meet the principal place of business criteria contained in Hong Kong’s Basic Law.

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“In operating as a licensed Jetstar branded airline, JHK is to surrender the right to determine its own network, fare structures and other flight-related matters to the Jetstar Group,” under the business service agreement, the ATLA said in its decision published on Thursday night.

Qantas said in a statement it would work with Jetstar Hong Kong’s two other shareholders China Eastern and Shun Tak Holdings to “review the enterprise”.

“This is as disappointing for the shareholders as it is for the travellers that Jetstar Hong Kong planned to serve,” Joyce said in a statement on Friday.

“It’s the travelling public who have lost out, because the message from this decision is that Hong Kong appears closed to fresh aviation investment even when it is majority locally owned and controlled.

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“At a time when aviation markets across Asia are opening up, Hong Kong is going in the opposite direction. Given the importance of aviation to global commerce, shutting the door to new competition can only serve the vested interests already installed in that market.”

Qantas said its investment in Jetstar Hong Kong was valued at $10 million in its latest financial accounts. The company did not say if it would appeal the decision.

Jetstar Hong Kong chief executive Edward Lau said he was extremely disappointed by the ATLA ruling.

Lau said the proposed airline’s principal place of business was Hong Kong, noting local businesswoman Pansy Ho was its chairman and there was a local management team in place.

“We will take time to review and consider our next steps,” Lau said in a statement on Thursday night.

“We intend to bring low fare options, a network from Hong Kong that Hongkongers are missing out on and the opportunities of flying in high value overnight visitors from around the region that the travel trade industries should enjoy.”

Jetstar Hong Kong’s application had been vigorously opposed by local carriers Cathay Pacific and its affiliate Dragonair, as well as Hong Kong Airlines and Hong Kong Express.

Cathay Pacific director for corporate affairs James Tong said the ATLA ruling ensured Hong Kong’s economic assets such as its air traffic rights would be used for the benefit of the people and economy of Hong Kong.

“It is the right decision for Hong Kong,” Tong said in a statement on Thursday night.

“As we said during the ATLA hearings, any airline with its principal place of business not in Hong Kong does not comply with Article 134 of the Basic Law.”

Qantas shares were down five cents at $3.19 in morning trade on the Australian stock exchange on Friday.

Hong Kong markets, where Cathay is listed, were yet to open.

Credit Suisse head of Asia Pacific transport research Timothy Ross told Bloomberg News the ATLA ruling was a “significant moral victory for Cathay”.

“The near-term earnings impact Jetstar would have had on Cathay was always going to be limited. Had Jetstar prevailed, it could have been seen as a backdoor means for other carriers to start a hub in Hong Kong,” Ross said.

Bocom International analyst Geoffrey Cheng told the South China Morning Post the ruling would benefit Cathay. The analyst also noted Hong Kong was already well served by low-cost carriers.

“Consumer choice wouldn’t be that affected by there being one less home-based budget carrier, since budget carriers from elsewhere have been coming,” Cheng said.

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11 Comments

  • AgentGerko

    says:

    These airline CEO’s always leave me cold. They want their home markets protected but expect every other market to throw open their doors. And QF is one of the worst. When they were govt funded they complained they couldn’t compete with free market carriers, and when they became a free market carrier they complained they couldn’t compete with govt funded carriers. Now Joyce has wasted millions of the companies funds buying aircraft for an airline that was never approved so the planes just sit around gathering dust. Still I’m sure the board will find ways to give themselves performance bonuses anyway.

  • Raymond

    says:

    So we seem to bend over backwards to accommodate the Chinese in many respects (Hong Kong is part of the PRC), but when it comes time to reciprocate a little, nup, doesn’t happen.

  • GS

    says:

    I totally agree with ‘AgentGerko’. Qantas started to go backwards very fast when Alan Joyce took control and in my onion has caused so much damage to the airlines reputation it will be hard to ever be respected as it once was.
    There is a book out now called “Mayday’, written by an Australian journalist which explains it all. The book lays the facts bare and tells the truth. As a share holder in Qantas I’m totally disgusted with the way Joyce is running the company and I only wish the Independent Senator Nick Xenophon did what he was intending to do. Get the share holders together and get rid of Joyce.
    He, Joyce is the disease that Qantas has to cure.

  • john doutch

    says:

    Well, QF lose this one. I was surprised they went there in the first place. I personally think it was announced too early, way back when, the “cat was let out of the bag” in haste.

  • Marc

    says:

    @Raymond
    So which Chinese airline (or 25% owned Chinese airline) is based in Australia. Try comparing apples.

  • Boggles

    says:

    Maybe they could send the A320s to australia to replace older model 320s.or qantas could use them on domestic flights or to New Zealand on intl runs…better than leaving out in the cold…

  • James from Sydney

    says:

    If the reason given for the rejection is genuine, why take 2 years to do so? They could have come to the same conclusion when the submission was first made or at least when Pansy Ho came into the picture. I suspect this a case of Chinese government’s reluctance to let go of the past. We have seen across the globe reluctance to let go of protectionism over many decades. It will eventually happen. The question is when?

  • Jon

    says:

    How can you be disgusted with how Joyce has run the company I am a shareholder as well and in the last year to 18 months has almost tripled the stock price he has reduced the age of the fleet to the same levels as Singapore airlines and Emirates and has had to make tough choices to right the ship

  • Andrew

    says:

    Cathay Pacific is protect whilst Qantas is not.

  • Vincent

    says:

    Simple business mistake since day 1. Why partner with China Eastern when it also has nothing to do in Hong Kong, its not even a Hong Kong Company.

  • Geoff

    says:

    It is all good and well to allow several players into the game, but it usually ends in disaster when one or more cut prices to the point none of them make money(they are in business) and all parties start to cut corners, and or look for outside funding to try and price their competitors out.

    When gone, survivor(s) puts up prices and they sort of have an agreement where similar charges are levied for similar legs….maybe just like before the ‘new guys’ came into the game.

    I would imagine the HK Government earn taxes from the various airlines operating out of HK. Surely by allowing in new players, and a resulting price war would cause the local guys to make a loss and pay no profit tax.

    I think AJ should be more concerned with his home base, before setting up a foreign base. Amazing he purchased new aircraft and had them sitting there for a years before he had approval. in principal.

    I was looking at Flight radar 24 tonight…amazing how many Emirates aircraft fly from all our capital cities to foreign ports…Used to be Qantas once.

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