[SCMP Column] Why is Jetstar so keen on becoming a Hong Kong airline

April 08, 2015

For more than two years I have been baffled by the do-whatever-it-takes efforts of Qantas affiliate Jetstar Airlines to become a Hong Kong local airline.

As the proceedings of the Air Traffic Licensing Authority (ATLA) drag on relentlessly, high in Exchange Square’s Hong Kong Arbitration Centre, the airline is haemorrhaging millions of dollars on aircraft it can’t fly, air crew who can only train and drink coffee, office space few of us can afford, and aviation executives who have nothing better to do than minimise the haemorrhaging.

Whatever the ruling of ATLA when it finishes its long-standing deliberations, no matter who “wins” or “loses”, there will definitely be judicial proceedings which will take a further six months or more. And beyond that, the Hong Kong government must also rule on whether Jetstar can be allowed to become a “local” carrier.

Sensitivities were tweaked further last week with the discovery that Singapore Airlines is looking to take a minority stake in Hong Kong Airlines – the local operator controlled by Hainan Airlines. The Hong Kong government now has not just one, but two potential Trojan horses to think about. And put bluntly, Singapore Airlines constitutes a much more direct threat to Hong Kong’s control of its own hub than Qantas ever will.

What is the prize that so powerfully motivates Jetstar – or its bankrollers, Qantas, China Eastern and Shun Tak - to bleed so heavily and for so long? For low-cost carriers like Jetstar, Hong Kong can offer only lean pickings. Competition is ferocious on almost all routes. Access to landing and take-off slots is a nightmare at any reasonable time of day. As a fast-turnaround, low-cost carrier Jetstar will have no capacity to capture cargo revenues, which so bolster the earnings of full-service competitors operating wide-bodied fleet through Hong Kong. Access to mainland cities (the holy grail for future airlines perhaps) is fraught with delays that take a savage toll on cost control.

In Asia as a whole, just Air Asia out of almost 20 low-cost carriers has in recent years reliably made money. Jetstar’s sister airlines in Japan, Vietnam and Singapore all appear to be struggling to keep their heads above water. And as the sorry plight of the now-bankrupt Oasis Airlines reminds us, the ferocious competition through the Hong Kong hub makes it one of the toughest hubs in the world through which to earn money.

So where is the logic to make all this pain worthwhile? Having sat through the tedium of the ATLA courtroom drama, with Jetstar and its Qantas lawyers pitching barristers against the arrayed objections of Cathay Pacific, Hongkong Express and Hong Kong Airlines, there seems only one thing: the right to sit alongside the Hong Kong government in its many air traffic negotiations, with the government negotiating on its behalf for air traffic rights to international destinations in Asia and further afield.

As an observer in Hong Kong negotiations, Jetstar would be privy to confidential and often highly sensitive strategic information on the priorities and objectives of Hong Kong negotiators.

There seems nothing else that designation as a local carrier delivers. Jetstar already has the unfettered right as a foreign carrier.

The crux is the information they glean from being inside the Hong Kong negotiating team. And here, for me, is the most troubling issue. Despite huge efforts to comply with the strict legal requirements of the Basic Law’s “Principal Place of Business” requirement, including bringing in China Eastern and Shun Tak Holdings to get Qantas shareholdings down to a minority, there are still members of the Jetstar board who would be privy to, and be able to pass on to outside parties, all of the Hong Kong government’s air traffic negotiation plans.

Does that matter? Perhaps not so severely with a troubled airline like Qantas. But as of last week it now seems we have Singapore Airlines preparing to enter the fray. And my guess is that ferocious Middle Eastern competitors like Etihad in Abu Dhabi and Emirates in Dubai will not be far behind. I wonder how we should feel about Emirates, or Singapore Airlines, or Qantas in effect sitting on both sides of the negotiating table as Hong Kong negotiates its air traffic rights.

Perhaps our Jetstar executives have some clear and brilliant answer as to why this brain-numbing courtroom process makes business sense. I have listened for two years, and I have heard none yet. Having recently sold off all but one of their aircraft, maybe Jetstar’s – or Qantas’s - answer will come sooner than we imagine.

[ Back ]