Australia’s Jetstar Suffers A Jolt As Hong Kong Rejects Bid To Start Local Airline

Australia’s Qantas-backed budget carrier Jetstar Hong Kong’s plan to set up a local airline has been rejected, after the bid was found not in compliance with the “laws of having its principal place of business in the Chinese territory.” The proposal was rejected after two years of deliberation. It also faced resistance from other local carriers.

Qantas, in its reaction said it will relook the basing of the low-cost carrier in Hong Kong. The carrier was floated as a three-way joint venture between Qantas Airways, China Eastern Airlines and Hong Kong investment firm Shun Tak Holdings. The Air Transport Licensing Authority, in its decision said, "Jetstar Hong Kong cannot make its decisions independently from that of the two foreign shareholders.”

Qantas Disappointed

Describing the decision as disappointing for shareholders as well as "for the travellers that Jetstar Hong Kong planned to serve,” Qantas chief executive Alan Joyce said, “it's the travelling public who lost out, because the message from this decision that Hong Kong appears closed to fresh aviation investment even when it is majority locally-owned and controlled.”

Joyce said Hong Kong seems to be going in the opposite direction compared to other aviation markets in Asia, which are opening up and respecting the importance of aviation to global commerce. He said shutting the door to new competition can only serve the vested interests already installed in that market. The airline is undecided on appealing the decision. The joint venture has been valued at $10 million Australian dollars, said Qantas sources.

Upbeat on Asian Market

However, Qantas will not abandon its investment in Jetstar's Asian arms’ despite the returns being unexciting. It is taking a long term view and feels the growth potential in Asian markets is huge, Alan Joyce said. While other divisions of the airlines are expected to report returns exceeding the cost of capital, Jetstar's Asian division, covering businesses in Singapore, Japan, Vietnam and Hong Kong are facing losses before interest and tax of $33 million in the first half of the financial year.

Growth Potential

"What we are investing in Asia for the group is a very small amount of capital," Joyce said in Miami recently. He said it is being done in a very capital-light way. Jetstar in Asia may not return its cost of capital in 2015 but the overall group will. "For us, these are low capital cost investments for huge growth potential,” Joyce noted. According to Joyce, the Asian market is the fastest growing aviation market in the world and may become the most profitable aviation market.

(For feedback/comments, contact the writer at k.kumar@ibtimes.com.au)