Hong Kong Halts Processing Applications for New Airline Licenses

Hong Kong won’t process any applications to start airlines in the city pending the completion of a review of its criteria for designating local carriers, the city’s Transport and Housing Bureau said.

While airlines must be incorporated in the city and have their principle place of business in Hong Kong to be considered local under the law, and the government looks at shareholding structure, these aren’t the only determining factors, according to a statement on the government’s Website yesterday. It didn’t say what additional elements would be considered.

Jetstar Hong Kong, a low-cost carrier owned by Qantas Airways Ltd. (QAN) and China Eastern Airlines Corp. (670), had secured a local investor and planned to start service at year-end, after waiting more than year for a license, the Hong Kong Economic Journal said yesterday, citing China Eastern Chief Economist Shan Chuanbo. A further delay would protect the interests of existing local airlines such as Cathay Pacific Airways Ltd. (293)

“I am disappointed, but not surprised, to see the government stalling on the licensing of new airlines,” David Webb, founder of local governance watchdog Webb-site.com, said in an e-mail.“It follows on from years of foot-dragging over the issue of new terrestrial TV broadcast licenses.”

The city has two over-the-air television broadcasters, one of which, Television Broadcasts Ltd. (511), is dominant, Webb said. The government is planning to issue “one or two” new TV licenses, rather than the three originally expected, the Standard newspaper said last month, citing an unidentified person.

“The government is trying to decide the ‘right’ number of licenses rather than let the market discover that,” Webb said. “The government claims to be in favor of competition but its protectionist actions contradict this.”

For airlines, the “government won’t provide any recommendations to an investor who is interested in setting up an airline in Hong Kong,” the Transport Bureau and Housing Bureau said in yesterday’s statement. “It is an airline’s own commercial decisions to make investment or other arrangements and it is the airline’s own responsibility to bear the commercial and legal risks involved,” it said.

To contact the reporter on this story: Joshua Fellman in New York at jfellman@bloomberg.net

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

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