Hong Kong's Air Transport Licensing Authority (ATLA) says it has rejected Jetstar Hong Kong's application for an Air Services Licence (ASL) on the grounds that the start-up does not comply with local law Article 134(2) which requires an airline's Principal Place of Business (PPB) to be in Hong Kong.

In its decision, the ATLA said it had considered the various requirements for a PPB among which is that an airline's activities must not be subject to the control of senior management, shareholders or related parties located elsewhere. In addition, an airline must have independent control and management in Hong Kong, free from directions or decisions made elsewhere.

Jetstar Hong Kong counts Hong Kong-based property and transportation conglomerate Shun Tak, Qantas (QF, Sydney Kingsford Smith), and China Eastern Airlines (MU, Shanghai Hongqiao) as shareholders each with 33.3% stakes in the carrier.

But, while Shun Tak controls 51% of the airline's voting rights, the ATLA said operational and business decisions still required the support of the Chinese and Australian carriers. This, in essence, gives Qantas and China Eastern unofficial de-facto control over the airline's operations.

In one instance, it noted that the committee responsible for making Jetstar's network decisions comprises two representatives from China Eastern, one from Jetstar Group, and one from Jetstar Hong Kong. In another, it noted that the appointment and removal of the Chairman would require approval of the two foreign shareholders’ directors.

Jetstar Hong Kong CEO Ed Lau said his airline was "extremely disappointed" by the decision while attempting to reinforce the start-up's claims of compliance with Article 134.

"We will take time to review and consider our next steps. We genuinely believe that Hong Kong is Jetstar Hong Kong's Principal Place of Business," he said. "The carrier is chaired by Hong Kong business woman Ms Pansy Ho with a local CEO and management team who lead and manage the business."

Cathay Pacific's Director Corporate Affairs James Tong said he welcomed the ruling as it had ensured that the city's air traffic rights, seen as a highly prized commodity, are used for the benefit of locals and the economy of Hong Kong as a whole.

Local carriers Cathay Pacific (CX, Hong Kong International), Dragonair (Hong Kong International), Hong Kong Airlines (HX, Hong Kong International), and Hong Kong Express (Hong Kong International) collectively opposed Jetstar's application, lodged in June 2013.