Jetstar Hong Kong's long wait to receive an operating licence may be coming to an end after the start-up took Stanley Ho's Shun Tak conglomerate aboard as an investor.
The low-cost carrier (LCC) joint venture between China Eastern Airlines and Qantas' Jetstar Group is now more confident that with a local shareholder the government will recognise it as a Hong Kong-designated carrier and give it a licence.
When the two carriers set up the joint venture in March 2012 they were so determined they would receive their licence without getting a Hong Kong investor on board that they had planned to be in service this month with three aircraft. But an application for the operating licence from the Air Transport Licensing Authority was delayed unexpectedly by more than six months. The venture's confidence was replaced by uncertainty which made Jetstar Hong Kong more eager to get a local investor on board.
According to the Basic Law, the definition of a Hong Kong-designated carrier is ambiguously defined as "having a principal place of business" in the city. From an operational perspective, it means the firm's board is in Hong Kong and independent to its parent.
In practice, officials said this means the applicant had to have a local investor. They referred to the shareholding structure of Cathay Pacific Airways, which has Swire Pacific and Air China as its major shareholders, said a source from Jetstar Hong Kong.
Over the past six months, Jetstar Hong Kong has been in talks with several local investors.
Hong Kong is one of a few Asian cities which has no home-grown budget carrier. Hong Kong Oasis Airlines went bust in 2009 because of a flawed business model, high jet fuel prices and disputes between shareholders. Since then, Hong Kong has fallen behind in the LCC market while other budget carriers in markets such as Singapore, Malaysia, Indonesia, Philippines, South Korea and Japan have flourished.
Cathay meanwhile has repeatedly said that the Hong Kong market is already very competitive and they welcomed competition from low-cost carriers which have flown into the city from many Asian cities including Singapore, Bangkok, Shanghai, Osaka and Busan.
But Jetstar Hong Kong poses a very different threat from other LCCs. Jetstar's major shareholder China Eastern has a comprehensive network on the mainland and could feed many mainland passengers to the new airline. Transiting passengers from the mainland could help Jetstar Hong Kong and make it a rival to Cathay, even though Cathay also relies heavily on mainland transit passengers from its subsidiary Dragonair.