Jetstar has been prevented from starting a new hub in Hong Kong by transport authorities in the city.
Jetstar Hong Kong, a joint venture by Qantas, China Eastern Airlines and Hong Kong investment firm Shun Tak Holdings, wanted to set up a base in the former British colony.
But Hong Kong's Air Transport Licensing Authority has rejected Jetstar's application because it did not comply with local laws that the company's "principal place of business" should be in the city.
The authority said in a statement: "Jetstar Hong Kong cannot make its decisions independently from that of the two foreign shareholders".
But Edward Lau, Jetstar Hong Kong's CEO, said that the company "genuinely believe that Hong Kong is Jetstar Hong Kong's principal place of business".
He added: "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."
Alan Joyce, CEO of the Qantas Group, called the decision "disappointing" for both Jetstar Hong's shareholders and travellers in the city.
He said: "It's the travelling public who have lost out, because the message from this decision is that Hong Kong appears closed to fresh aviation investment even when it is majority locally owned and controlled.
"At a time when aviation markets across Asia are opening up, Hong Kong is going in the opposite direction. Given the importance of aviation to global commerce, shutting the door to new competition can only serve the vested interests already installed in that market."
Qantas said it would work with other shareholders to review the future of Jetstar Hong Kong following the decision.
Last year, Jetstar expanded its codeshare agreement with Emirates on five more routes in the Asia-Pacific region (see news, September 2014).