Qantas Airways’ hopes of launching a new low-cost carrier in Hong Kong have been quashed as the territory’s Air Transport Licensing Authority (ATLA) rejected the application from Qantas to start a new budget airline – Jetstar Hong Kong – on the basis that the ultimate control of the airline would be in Australia and mainland China.

Cathay Pacific and Hong Kong Airlines have been strenuously objecting to Jetstar’s application and a public inquiry on the issue was held in February.

“Having considered all relevant information including submissions and evidence Jetstar Hong Kong and the objectors presented at the public inquiry, the Authority decided that Jetstar did not comply with Article 134(2) of the Basic Law in having its principal place of business in Hong Kong and that Jetstar Hong Kong’s application be refused,” the regulator said.

Jetstar Hong Kong had formed a key plank of Qantas’s Asian growth strategy and would have joined its budget carriers operating under the Jetstar brand in Singapore, Vietnam and Japan. At the same time, Jetstar Group chief executive Jayne Hrdlicka admitted the airline had misjudged the ease of gaining regulatory approvals for the venture but remained “patient and long-minded” about its prospects.

Qantas, Chinese state-owned carrier China Eastern and Hong Kong’s Shun Tak Holdings each own one-third of the business venture, which was launched in March 2012 and expected to begin flying in 2013.

At one point, Jetstar owned nine Airbus A320 aircraft despite not having approval to fly, with plans to add another nine to the fleet once it received regulatory clearances. But over the last year, the airline has sold eight of the fleet, leaving it with just one aircraft for its planned launch, assuming approvals were received.