Cathay Pacific Says Jetstar Entry to Hurt Hong Kong Aviation

Cathay Pacific Airways Ltd. (293), seeking to bounce back from its lowest profit in at least 15 years, said allowing foreign airlines to share Hong Kong’s traffic rights would damage the city’s economy as a Qantas Airways Ltd. (QAN) venture seeks to start a budget carrier.

Cathay will respond to the government within two weeks on an application by Jetstar Hong Kong to operate out of the city, the airline said in an e-mailed statement. The proposal of the new carrier, part owned by Qantas and China Eastern Airlines Corp. (670), was published in the local government gazette.

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. Jetstar Hong Kong in June sold a stake to a company founded by gambling tycoon Stanley Ho in a bid to win an operating license in the former British colony, where no budget airline has a base.

“Expecting Cathay to support Jetstar would be like turkeys voting for Christmas,” said Timothy Ross, a Singapore-based analyst at Credit Suisse Group AG. “In such a highly competitive industry as the airline sector, incumbents do their best to eliminate potential competition as early as possible.”

Transport Bureau

Hong Kong’s Transport and Housing Bureau is currently reviewing the regime for designation of local carriers and expects to complete the process “in the next few months,” the authority said in an e-mailed statement today. The Bureau said in June it won’t process any application to start airlines in the city pending the completion of the review.

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’s statement. Jetstar Hong Kong’s application for the license was published on the gazette Aug. 23.

“Jetstar Hong Kong is a carrier that is a franchise of and controlled by Jetstar Australia and its parent, Qantas Airways,” Cathay said. Putting some of Hong Kong’s air-traffic rights “into the hands of a carrier that is controlled by a foreign airline would also be very damaging to the local aviation industry and the Hong Kong economy.”

According to Hong Kong’s basic law, the local government has the authority to issue licenses to airlines incorporated in Hong Kong and with the city as its principal place of business.

“Whilst we don’t take anything for granted, we are confident that Jetstar Hong Kong will meet all requirements including principal place of business,” Jetstar said in an e-mailed statement. “Vast majority of the future direct 600 staff members will be employed locally.”

Marque Carrier

Cathay this month reported first-half profit that missed analyst estimates. The airline also named Ivan Chu as its next chief Executive. Chu, who has worked at Cathay for 29 years and has been chief operating officer since March 2011, will take over after annual results are announced in March.

Shares of Cathay fell 0.3 percent to close at HK$13.98 in Hong Kong. The stock has fallen 1.7 percent this year, compared with a 2.9 percent decline for the benchmark Hang Seng Index.

In June, Jetstar Hong Kong sold a 33.3 percent stake to Shun Tak Holdings (242), 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 last week.

Jetstar Hong Kong said in June that it is “confident” of getting approvals before the end of this year.

No budget carrier has a hub at Hong Kong Airport. Oasis Hong Kong Airlines Ltd., which operated budget long-haul flights, collapsed in 2008 after racking up losses of about HK$1 billion ($129 million) in less than two years.

To contact the reporter on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net

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

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