Is Jetstar Hong Kong push worth it?

April 10, 2015 11:06
Jetstar will have no capacity to capture cargo revenue which bolsters the earnings of full-service competitors operating through Hong Kong. Photo: Bloomberg

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 airline.

As the proceedings of the Air Traffic Licensing Authority (ATLA) drag on, the airline hemorrhages 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 minimize the bleeding.

Whatever ATLA decides when it finishes the deliberations, no matter who wins or loses, there will 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 China’s Hainan Airlines.

The Hong Kong government now has not just one but two potential Trojan horses to think about.

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 revenue which bolsters the earnings of full-service competitors operating wide-body fleet through Hong Kong.

Access to mainland cities (perhaps the holy grail for future airlines) 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 reliably made money in recent years.

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 markets in the world to earn money.

So, where is the logic in making 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 the 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 “principal place of business” requirement of the Basic Law, 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 able to pass on to third 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, Singapore Airlines appeared to be 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 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 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.

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Executive director of the Hong Kong APEC Trade Policy Group