“Hong Kong carrier” defined

HONG KONG – The government has finally given a clearer definition of what it means to be a “Hong Kong carrier”, which may put an end to proposed budget carrier Jetstar Hong Kong’s two-year wait for approval owing to objections on those grounds.

The lack of a clear framework to determine the seemingly simple question of whether a carrier is a Hong Kong one or not has been at the crux of a prolonged debate over the legality of Jetstar, originally a joint venture between China Eastern Airlines Corp and Australia’s Qantas Airways before Shun Tak Holdings became an equal shareholder in June last year.

The Basic Law requires airlines that want to establish in Hong Kong to prove they have their “principal place of business” in the city but does not elaborate on the criteria.

The Transport and Housing Bureau, which is in charge of designating the local carrier status, wrote in an emailed response to the South China Morning Post’s inquiry that a 10-month review completed in April had “fine-tuned” the framework of designation by spelling out the factors it takes into account, which now also include “public interests”.

“Factors such as ultimate management and control of the business, the relationship between the applicant and other foreign airlines, the place where the major operations of the airlines’ business is conducted would be relevant. It has also been stipulated clearly in the revised guidelines that public interests will be taken into account when considering whether an airline should be designated,” the statement said.

It added that airlines already designated also had to demonstrate their compliance with the requirement on a continuing basis.

Cathay Pacific Airways, which filed a formal objection to Jetstar’s air transport licence application in September last year alleging that its management and control rest in Australia, said: “We understand Hong Kong government has recently ‘fine-tuned’ the framework of what constitutes a Hong Kong carrier … We will continue to stand by our objection.”

Cathay also said it was itself “in full compliance with” the new framework, having operated as a Hong Kong carrier for 68 years.

Sources close to the matter said the bureau also looked at the location of the applicant carrier’s shareholders, their voting powers, places of residence, and staff composition.

Jetstar Hong Kong has made a series of attempts to strengthen its local leadership and image.

Pansy Ho Chiu-king, Shun Tak’s managing director and Stanley Ho Hung-sun’s daughter, was made chairman in August last year and Shun Tak’s voting rights have been increased to 51 percent to be able to appoint four out of seven board members, a change that took place in January but was only disclosed to the Hong Kong stock exchange by Shun Tak last month.

“We are confident that we have a strong case,” a spokeswoman for the carrier said, referring to Shun Tak’s elevated role in the board and management of the airline. She declined to comment on how long they are prepared to wait.

Corporate governance activist David Webb said the revised framework clarified little.

“Many of the criteria are subjective and none of them are determinative of the interpretation,” Webb said. “In other words, the government will take these factors into account, but there isn’t a requirement to meet a certain number of them, and they are not exhaustive either.”

He said the Hong Kong carrier status requirement should be abolished altogether for the sake of public interests. “This guideline is necessary only because Hong Kong won’t break its protectionist policies towards domestic airlines rather than an open skies policy. It would benefit the consumers to have more competition, which will in turn drive down costs,” he said.

But advocates of government regulation argue high barriers to entry are necessary to ensure passenger safety and service continuity, and that consumers already have enough choices among foreign airlines that fly here.

Hong Kong is served by close to 20 low-cost carriers, including Hong Kong Express Airways – the only home-based one controlled by Hainan Airlines’ parent HNA Group, although low-cost carriers’ market share is estimated to be only 5 per cent in Hong Kong compared with 30 per cent in developed markets, according to the Centre for Aviation.

The transport bureau said it was still reviewing Jetstar’s licence application and could not give a hearing date. A source close to Jetstar estimates it is not likely to be in business for the upcoming Christmas and Lunar New Year traffic boost.

The airline, originally planned for take-off in 2012, has so far sold six of its new A320 planes and kept the minimally required three parked at Airbus’ base in Toulouse, France.