【Article】Open Skies – Argument against budget airlines won’t fly in Hong Kong

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SCMP 2013-10-15
A15 | INSIGHT | Dennis Kwok

Open Skies – Argument against budget airlines won’t fly in Hong Kong

【Dennis Kwok says budget airlines must be part of the growth in our aviation industry, as travellers will benefit from greater competition】

Affordable air travel is made possible by low-cost carriers. Yet, they have so far failed to establish themselves in Hong Kong. While low-cost carriers account for 65 per cent of all travel in the Philippines and 61 per cent in Thailand, that figure is less than 10 per cent in mainland China, Taiwan and Hong Kong.

Jetstar Hong Kong has applied to the Air Transport Licensing Authority to operate out of Hong Kong. This is a potential game changer that could allow more Hongkongers to fly, and to further open up the civil aviation industry to more competition.

Hong Kong’s largest conventional airline, Cathay Pacific, and its subsidiary, Dragonair, have voiced their opposition to Jetstar’s application, claiming it would contravene Article 134 of the Basic Law which states that the government will only issue licences to airlines which are incorporated, and have their principal place of business, in Hong Kong.

The article’s original intent was to protect Hong Kong’s civil aviation from becoming dominated by Chinese airlines after the handover.

Whether Jetstar Hong Kong has its principal place of business here is a question of fact determined by its place of incorporation – Hong Kong – and whether its board and management principally operates out of Hong Kong. Other factors include whether it intends to hire employees and maintain a fleet out of Hong Kong International Airport.

Any argument pointing to foreign ownership and shareholders structure is misconceived and restricts the development of the industry here. Shun Tak Holdings, a Hong Kong public company, China Eastern Airlines, which is listed on the Hong Kong stock exchange, and Qantas Group, based in Australia, each own one-third of Jetstar Hong Kong.

Beyond the legal considerations, Hong Kong’s economic interests are also at stake. Critics claim Chek Lap Kok is congested, with limited landing and departure slots available for new airlines. Low-cost carriers, which operate on a point-to-point model (rather than the conventional hub-and-spoke model requiring the co-ordination of connecting flights) are better placed to schedule flights in off-peak time slots.

Point-to-point travel facilitates tourists spending time and money in Hong Kong. Low-cost carriers will also foster competition that will provide travellers with more options at different prices.

Hong Kong is within a five-hour flight of half of the world’s population, an enormous geographical competitive advantage. Most of Asia’s key airports can be reached in four hours.

As disposable incomes rise and demand for travel booms, this zone will increasingly include hundreds of secondary airports viable for direct flights from Hong Kong. China’s middle class is no longer confined to Beijing, Shanghai, Guangzhou and Shenzhen.

Airline industry stakeholders, including Cathay, support the construction of a third runway at Chek Lap Kok, which means they also see ample room for growth and development. This must include allowing other players like low-cost carriers to enter the market. Tilting the rules in favour of existing players only makes us uncompetitive in the long run.


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