Qantas Airways Ltd and its partners in budget airline Jetstar Hong Kong will review the venture after authorities in the city rejected its application for an operating license.

Qantas, billionaire Stanley Ho Hung-sun's Shun Tak Holdings Ltd and State-owned China Eastern Airlines Corp will examine the venture, the Sydney-based carrier said in a statement on its website.

Hong Kong's Air Transport Licensing Authority ruled Thursday that the airline didn't comply with legal requirements to have its principal place of business in the city.

The ruling, more than two years after Jetstar Hong Kong first asked for a license, is a boost for Cathay Pacific Airways Ltd, a full-service airline that had opposed Jetstar's entry into its home market. Cathay controls about half of Hong Kong's air traffic, and Asia's biggest international carrier is seeking to defend that dominance as the mainland's economic growth slows.

"Cathay has so much political sway in what happens there that I'm not surprised to see them not get it," Evan Lucas, a market strategist at IG Ltd, said by phone from Sydney.

Qantas closed down 3.7 percent at A$3.12 ($2.4) in Sydney, the biggest fall since June 18. Cathay dropped 2.2 percent in Hong Kong to close at HK$19.48, while China Eastern dropped 10 percent in Shanghai to finish at 11.67 yuan ($1.8), its biggest fall in a month.

According to Article 134 of Hong Kong's Basic Law, the local government can issue licenses to airlines that are incorporated in the city and use it as their principal place of business.

"There is no dispute that the day-to-day management would be conducted in Hong Kong and managed" in the city by Jetstar Hong Kong's CEO, but that's not enough to meet the criteria for principle place of business, the licensing authority said in its ruling.

The low-cost carrier was formed in 2012 as a joint venture between Australia's Qantas and Shanghai-based China Eastern.

Shun Tak joined later as a local partner and has 51 percent of voting rights, with the three parties holding equal economic stakes. Seventy percent of the board is from Hong Kong, according to the Qantas statement.

"The message from this decision is that Hong Kong appears closed to fresh aviation investment even when it is majority locally owned and controlled," Qantas Chief Executive Officer Alan Joyce said in a statement. "Shutting the door to new competition can only serve the vested interests already installed in that market."

(HK Edition 06/27/2015 page7)