Hong Kong Airlines crisis shows city must reform aviation policy says Qantas boss, as experts express doubt over future investment in struggling carrier

Danny Lee

The near collapse of Hong Kong Airlines highlights the need to reform the city’s aviation policy, a top airline chief has said.

In the wake of the carrier’s last-minute bailout by its Chinese owners, Alan Joyce, the Qantas CEO, said reforms were needed to create a “level playing field” in Hong Kong, where Cathay Pacific is seen as having an unfair advantage.

Qantas had its fingers burnt by the city’s Air Licensing Transport Authority in 2015 when its budget airline, Jetstar Hong Kong, was denied a licence by the authority, which also determined the fate of Hong Kong Airlines, the only local competitor to Cathay.

Joyce said the airline would “not revisit the possibility of investing in a Hong Kong carrier”, and called for licensing rules to be revamped to ensure healthy competition.

“We qualified for being a Hong Kong-based airline, more than Cathay did,” he said. “That was not allowed to happen at the time which was wrong. There should be a level playing field. The rules should be the rules, and people should have been allowed to do it.”

Qantas has doubled down on its Singapore base, and is now the second largest airline at Changi Airport. Photo: Handout

Since the Jetstar ruling, the Australian airline has doubled down on its Singapore base, where it is now the second largest airline at Changi Airport, behind the city’s flag carrier, and is ideally placed to capture the huge growth in air travel forecast in the region in the next 20 years.

Given the decision in 2015, experts doubt whether foreign airlines would have wanted to invest in HKA, given the hurdles they must overcome, one of which is how a company qualifies to be a local airline.

Four years ago, the ALTA said the budget carrier did not qualify, as its key business decisions were not made in Hong Kong, but Australia, where Jetstar is headquartered.

Jae-Woon Lee, an assistant professor of law at Chinese University, said the repercussions from that decision were still being felt, and would continue to be a significant consideration for any future potential investors.

“If a foreign airline wanted to be a simple investor, it’s fine, like Qatar Airways buying Cathay shares,” Lee said. “If the foreign airline wants to be the effective controller, Hong Kong wouldn’t allow it, and it will be a barrier to foreign investment.”

Cathay Pacific Airways offers lifeline to pilots at troubled Hong Kong Airlines

However, the Hong Kong government has defended its “progressive liberalisation policy” on aviation.

“We believe that there is considerable competition in our air services market and sufficient choices are available for travellers flying to and from Hong Kong,” a Transport and Housing Bureau spokeswoman said.

At the moment, the competitive landscape has largely shifted in Cathay’s favour, though it has increasingly felt the strain from rival mainland Chinese and Middle East carriers. In 2006, Dragonair was taken over by Cathay and earlier this year HK Express went the same way in a HK$4.93 billon deal.

Early this month, Hong Kong Airlines escaped from being the first airline in the territory to collapse in more than a decade, Oasis Hong Kong came and went in 2008.

Lee said runway slot allocations generally favoured incumbent airlines, making it a significant barrier for newcomers. To make Hong Kong aviation a level playing field, the slot allocation should be reviewed while factoring in Hong Kong’s uniqueness, he said.

“Aviation policy is a matter of prioritising,” Lee said, “For example, the central pillar of China’s aviation policy is to protect its “big three” state-owned airlines. Japan’s is how to become “Asian Gateway”. South Korea’s has been promoting home-grown low-cost airlines. What is Hong Kong’s aviation policy priority?”

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Alan Tan Khee-Jin, an aviation law professor at the National University of Singapore, said the perception was that Cathay “exercises outsized influence in Hong Kong, and gets its way most of the time”.

But he said with question marks hanging over HKA, greater dominance for the larger incumbent would be bad for consumers and competition, though Cathay did not owe “ a duty to help others succeed”, through failures that have been “largely self-inflicted.”

The long-term uncertainty for Hong Kong Airlines reinforces the challenge among local players trying to compete with Cathay, which, as the incumbent has used up all available quotas for Hong Kong carriers to fly to India and Australia, leaving its struggling rival access to major destinations and growth markets.

In response, Cathay said it competed against 82 airlines and 37 cargo carriers, and collaborated with partner airlines, flying out of Hong Kong. “Competition is not a zero-sum game. We are used to competition,” the airline said.

Ends

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