MacroscopeWhy is Jetstar so keen on becoming a Hong Kong airline?
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.
As a fast-turnaround, low-cost carrier Jetstar will have no capacity to capture cargo revenues
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.