Cathay Pacific: Jetstar Hong Kong fails to meet Basic Law Principal Place of Business requirements

In our closing submission to the Hong Kong Air Transport Licensing Authority (ATLA) inquiry to determine if Jetstar Hong Kong (JHK) meets the requirements of Article 134 of Hong Kong’s Basic Law to qualify as a Hong Kong airline, Cathay Pacific Airways outlined why JHK has not met its obligation to prove that Hong Kong is its principal place of business and why, as effectively little more than a branch office of an Australian airline, it does not qualify under the Basic Law for a license as a Hong Kong airline.

We contend that not only has JHK failed to prove that Hong Kong is their principal place of business, the confidential business agreements they provided to ATLA, which, in keeping with ATLA requirements, were shared with all objectors to their application, and the testimony to the inquiry of their Chief Executive, have confirmed that core business functions for JHK will be carried out in Australia by their parent airline, Jetstar. That is the Jetstar Business Model that they have committed to implement and that is why Australia is their principal place of business.

Jetstar, and its parent Qantas, have made it very clear in their filings to Australian regulators that the whole purpose of the Jetstar Business Model is to create a single fully integrated organization with integrated management of all major operational, commercial, and procurement activities that can effectively circumvent regulatory requirements as to foreign ownership and control of airlines in Asia. That is what they have done in other markets and that is what they are trying to do in Hong Kong.

The challenge they face in Hong Kong, however, is that the location of ultimate management, control, and authority determines principal place of business and that is not determined by anything they might do regarding the shareholding structure or voting rights related to their Hong Kong branch. As we have said in both our oral and written submissions, JHK’s attempt to use “window dressing” to downplay their relationship with Jetstar in Australia, is not an accurate reflection of the true relationship they have with Jetstar in Australia.

The principal place of business requirement was included in the Basic Law to prevent foreign airlines from setting up a branch office in Hong Kong to obtain Hong Kong’s air traffic rights through the backdoor. If foreign airlines were successful in doing that, they would use their ultimate management, control, and authority over that airline to use Hong Kong air traffic rights for their own purposes, thus harming Hong Kong’s economic interests.

That is why Cathay Pacific has been joined by other Hong Kong airlines in objecting to this attempt by Qantas and Jetstar to use “window dressing” to access Hong Kong’s valuable air traffic rights. That is also why we believe ATLA should determine that JHK has failed to meet the Basic Law principal place of business requirements.