An appetite for risk

At the time of its launch Qantas said it would invest a maximum of US$99 million in Jetstar Hong Kong, which was reduced to US$66 million when Shun Tak Holdings took a one-third stake in the venture. Given the airline never started operations Qantas has lost nothing like that amount in the grounded venture. Still, to the end of 2014 Qantas said its investment in Jetstar Hong Kong had stood at A$10 million.

So were Qantas and its partners misguided and naive in believing they could get approval for Jetstar Hong Kong? Certainly the Air Transport Licensing Authority was quite blunt in its finding that Hong Kong would not have been the airline’s ‘principal place of business’ and that instead Jetstar Hong Kong would have been effectively controlled by Jetstar from Melbourne.

Yes, technically Jetstar Hong Kong was headquartered in Hong Kong and with a Hong Kong-based management team, but for Qantas the airline was not just an investment that had lots of upside exposure to the growing greater China airline market, it was also a key plank of its visionary, but also brave, ‘pan-Asian strategy’ to set up a network of Jetstar-branded carriers across Asia. And that would have meant coordination of branding, routes, fares and schedules, all from Jetstar HQ in Melbourne.

But on the other hand the Air Transport Licensing Authority’s decision was a literal interpretation of Hong Kong law that might not have been made a decade ago.

Certainly Qantas boss Alan Joyce’s protestations about the rise of “protectionism” in Asia suggests that Qantas and its partners’ appraisal of the openness of Hong Kong to foreign investment was a miscalculation, and they had assessed Hong Kong was more open to investment than it now is. There was a lot of upside had the venture launched and been a success. Should they have known better? That’s easy to say with hindsight, and we can argue the ins and outs of cultural sensitivities and the difficulties of doing business in Asia, misjudgements over the level of influence Cathay Pacific and the other Hong Kong airlines have over decision-making in the city state, and if Qantas misjudged how liberal Hong Kong’s attitudes to foreign investment now are.

But there is a broader point here.

In trying and failing, Qantas and its partners did at least try. All successful business endeavours, indeed all human achievement, has entailed some risk, the preparedness to innovate and the willingness to have a go.

There was a lot of upside had the venture launched and been a success.

Clearly, $10 million is $10 million, no-one is advocating companies be reckless in how they allocate shareholder funds. Plus there has been a significant opportunity cost in the Jetstar Hong Kong grounding, not just financially but in management time and headspace as well. Hindsight says that money and time would have been much better spent elsewhere.

But the case can be made that there should be more of a willingness and appetite for risk, and a willingness and appetite to innovate in aviation, especially Australian aviation. The worst possible outcome from Jetstar Hong Kong is Qantas becoming more conservative and risk averse. The best possible outcome is that Qantas looks carefully at the lessons learned, and uses that wisdom to guide its next investment in a new venture.

Rightly, because safety should be everyone airline’s number one priority, aviation has a risk averse culture. The challenge then is how to make sure that risk aversion doesn’t stifle innovation and the willingness to take on some business risk.

Maybe fools rush in, but fortune favours the brave and those prepared to innovate and disrupt the status quo.