Bloomberg News

Cathay Opposes Jetstar Hong Kong Plan as Harmful for City (3)

September 05, 2013

Cathay Pacific Airways Ltd. (293) opposed a Qantas Airways Ltd. (QAN) venture’s plan to start a budget carrier in Hong Kong, saying the proposal violates local laws and granting access would be detrimental to the city’s interests.

“Cathay Pacific Airways can confirm that it has filed a formal objection to the application,” the Hong Kong-based airline said in an exchange statement today. The application of Jetstar Hong Kong, a venture between Qantas, China Eastern Airlines Corp. (670) and a company founded by gambling tycoon Stanley Ho, was made public by the city last month.

Approving the application would be a violation of Article 134 of Hong Kong’s Basic Law because Jetstar Hong Kong doesn’t meet the requirement that it must have its principal place of business in the city, Cathay said in its statement. About half of Hong Kong’s traffic is controlled by Cathay, and Asia’s biggest international carrier is seeking to defend that dominance while China’s economic growth slows.

“That provision wasn’t there to stop low-cost carriers, they didn’t exist,” said Danny Gittings, assistant professor of law at the University of Hong Kong School of Professional and Continuing Education, and author of the book “Introduction to the Hong Kong Basic Law.” “If Cathay Pacific really believes that the decision breaks the Basic Law, it’s certainly open for them to bring a case on that basis.”

‘Dangerous Precedent’

The precise meaning of the article hasn’t yet been litigated, Gittings said. The original intention of the law, written in the 1980s, was to prevent Chinese carriers from taking control of Hong Kong’s air traffic rights after the handover, he said. Hong Kong, a former British colony, was turned over to China in 1997.

According to the Basic Law, the local government has the authority to issue licenses to airlines incorporated in the city and use it as its principal place of business.

Jetstar Hong Kong rejects any suggestion it’s controlled by a foreign airline and the company is managed locally, Chief Executive Officer Edward Lau said in a statement today. The airline confident of meeting the regulations, he said.

“The application would set a dangerous precedent by granting control of Hong Kong’s hard-negotiated sovereign air traffic rights to a carrier that is nothing more than a franchise operation controlled by a foreign airline,” Cathay said.

Hong Kong-Based

Cathay’s shares rose 3.3 percent to close at HK$13.82 in Hong Kong trading today, compared with a 1.2 percent increase in the city’s benchmark Hang Seng Index.

The Air Transport Licensing Authority has received Cathay’s objections, Hong Kong’s Transport and Housing Bureau confirmed in an e-mailed statement today. It hasn’t received any other objections from airlines so far, according to the statement.

The bureau said last month it’s reviewing laws regarding designating a carrier as local and expects to complete the process “in the next few months.”

Under the current system, an applicant must seek an air operator’s certificate and an air transport license as well as the designation as a Hong Kong carrier, according to the bureau.

In June, Jetstar Hong Kong sold a 33.3 percent stake to Shun Tak Holdings, a company founded by Ho. Qantas and China Eastern Airlines hold 33.3 percent each of the proposed carrier. The venture also named Pansy Ho, managing director of Shun Tak and a daughter of Stanley Ho, as its chairman.

To contact the reporters on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net; Simon Lee in Hong Kong at slee936@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net


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