Cathay Pacific Case Study Report

This report analyzes the business challenges faced by Cathay Pacific, focusing on its struggles with price competition in the Asian airline market. The report reviews Cathay Pacific's history and current market position, noting its focus on premium services while passengers increasingly prioritize lower fares. The analysis highlights the intense competition from budget airlines and the impact of this on Cathay Pacific's profitability, referencing its losses in 2016. The report discusses the role of technology and online booking platforms in shaping passenger perceptions and choices. It concludes with recommendations for Cathay Pacific to improve its revenue management strategies by diversifying revenue streams beyond core ticket prices, focusing on ancillary services like food and extra legroom to compensate for potentially lower ticket prices. The report emphasizes the need for innovation and data-driven decision-making in this highly competitive environment.

Review of the website of organization
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Author’s Note:

Executive summary
A report was prepared post reviewing the website of Cathay Pacific. Apart from that,
other associated but relevant information was also studied like media releases, news articles,
industry analysis, blogs etc. to identify what problem the company that led to an adverse
impact on the performance of its business was facing. Based on the annual reports, journal
articles and government reports, it was found that air passengers were preferring other flight
operators over Cathay Pacific and that led to a decrease in the revenue of the company
especially in the year 2016 when the same had reflected in the annual report of Cathay as
well.
Upon analysis, it was observed that the airline carrier was focusing too much on
luxury and premium services whereas passengers were preferring a low cost alternative rather
than high end services. Therefore, it was concluded from the studies that the company needs
to focus on revenue management so that even if the core ticket price is re-modelled, the
company can still generate alternate sources from other preferences of travelers namely food,
extra leg space and so on.

Table of Contents
Introduction................................................................................................................................2
Organizational problem..............................................................................................................2
Findings and discussion.............................................................................................................4
Conclusions and Recommendations..........................................................................................7
Reference List............................................................................................................................9

Introduction
On September 24, 1946, Roy C. Farrell (an American) and Sydney H de Kantzow (an
Australian) formed Cathay Pacific Airways. This newly formed company started operating
passenger flights to Singapore, Bangkok, Shanghai and Manila. The company expanded at a
rapid rate and in the next three years one of the leading trading companies of Hong Kong by
the name Butterfield & Swire (presently referred as the Swire Group) proposed for a 45 per
cent stake in the company. Under the management of John Kidston Swire, this trading
company took charge of the entire management of the airline. During the period 1962 until
1967, the growth of the business happened at an average rate of 20% year on year.
In early 1970, Cathay Pacific started using latest technologies for managing the
operations ("About Our Airline | History - Cathay Pacific", 2019). The major were the
computerized reservation system and introduction of flight simulators for training. The
company acquired the first Boeing 747 – 200 during the middle of 1979. With the inclusion
of more and more Boeing 747, the company expanded the flight services to places like North
America and Europe as well. The year 1980 was the most spectacular year for Cathay Pacific.
The company expanded its operations to places like Paris, Zurich, Manchester, Rome,
Vancouver, Amsterdam, Brisbane and San Francisco.
Organizational problem
Cathay Pacific has become the perfect example of how an up and running company
can fail in the end in case the policy and the strategy is not updated or changed on time. The
airline was more focused on restoring the brand and in the process ignored the fact that the
travel industry is driven by price rather than providing premium services especially in the
case of Asian travelers.

Findings and discussion
As on date, Cathay Pacific is facing the problem of price war versus the value it can
provide to the passengers. In fact, this new competitive dynamic has literally sucked up the
business out of every airline company that are operating in the market. Presently, the
competitive advantage for any operating airline is the price of the ticket rather than the value
of the service being provided by the airline ("How airlines can gain a competitive edge
through pricing", 2019).
There is no doubt that the airline competition has become far more intense and
uncompromising than before especially in the Asian context. A prediction by the IATA
(International Air Transport Association) expects that there would be almost 7.8 million air
passengers travelling by the year 2036 ("2036 Forecast Reveals Air Passengers Will Nearly
Double to 7.8 Billion", 2019). The major driving factor for this surge would be global
connectivity and airlines need to be prepared to tap this opportunity in case they are looking
to expand their business in the next 20 years. This prediction is based on the average CAGR
(Compound Annual Growth Rate) of 3.6 per cent and the latest update on 20 years Air
Passenger Forecast. In this respect, it has been noticed that the biggest driver for the demand
will be the Asia as well as the Pacific regions. In fact, these regions will be the source for
more than half the new flyers in the next 20 years. It is being assumed that China will be the
largest aviation market and would leave behind the United States two years before than what
it was predicted previously. This is anticipated to happen in 2022. The UK will slide to the
fifth position and India as well as Indonesia will move up the position by 2025 and 2030
respectively (Douglas & Tan, 2017). Turkey and Thailand will also get an uplift and will be
within the top ten markets. The graph below shows the trend of air travel as predicted for the
next couple of decades:

The major competition for Cathay Pacific in air service would be from the national as
well as the budget airlines that are restructuring their business model along with the operation
module in a very aggressive way for maximizing the profit and at the same time bring down
the cost (Williams, 2016).
In the year 2016, Cathay Pacific had suffered an annual loss ("Cathay Pacific losing
altitude | Business Vision", 2019). Thereafter, it made a few changes to generate more
revenues as well restore the service and the brand value of the company. There are chances
that these changes might lead to a positive effect in the future, however chances are very few
that these would make any difference if the air travel in Asia continues to be driven by the

cost of the flight ticket instead of premium services. Cathay has been doing a lot to restore the
service quality of its business lounge, however the price onslaught is so fierce that these
restorations might turn out to be insignificant ("Once an Asian aviation pioneer, Cathay
Pacific is now struggling to leave behind its past", 2019).
Furthermore, Cathay has complicated its internal structure by making itself a big
hedge fund play. The state owned Air China currently has a 30% stake in Cathay ("Cathay
Pacific is a case study in how airlines need to change", 2019). At the same time, Air China
also has a major share holding in Shenzhen Airlines where it offers seventeen international
flights from Shenzhen. This implies two things for Cathay – this could lead to further
evolution of the airline or perhaps an integration as Shenzhen expands further. Again, Qatar
Airways has a stake of 9.6% stake in Cathay thereby making it the third largest investor other
than Air China and Swire (Hammoud, Tawfik & Elseyoufi, 2017). Even thought this might
be considered as a supporting move for the turnaround plan for Cathay Pacific; however it
also leads to a benchmark for shareholders or buyers in the future. Eventually, the investors
will have to take a call on whether the model of the company is practical from the perspective
of price competition is being constantly hammered by the value proposition of the company
(Pyke & Sibdari, 2018).
Analysts of the Asian airlines have pointed out there have been complaints from
passengers regarding Cathay Pacific (Pearson et al., 2015). However, in spite of that travelers
still prefer to fly with Cathay. Those travelers who prefer luxury or seek business air travel
are willing to pay a premium price. The preference of such travelers is good service and
punctuality. However, Cathay has to decide whether such contradictory perceptions can help
sustain the business or not.

It must be kept in mind that the networking effect of technology is fast changing the
perceptions about all sorts of transportation services including that of air travel. This is the
age of apps where a couple of taps is enough to unravel the ticket price of almost all the
operating airlines for a particular travel date. In addition, as per that, the airfare of Cathay
Pacific is constantly being ranked as among the most expensive and travelers have no idea
why it is so. It needs to be understood that the perception of the buyers do not easily change
especially when apps are in the picture (O’Connell, 2018). On top, Cathay is still a family
owned setup that follows traditional methods of operations typical of a Hong Kong Chinese
family.
Conclusions and Recommendations
From the above analysis and study, it is evident that Cathay Pacific has sustained
business loss in the year 2016 and post an analysis of the loss; it was found that the loss was
primarily due to the high-ticket price of the airline. It is quite evident that the aviation
industry is among the fastest growing sector and for that reason it also happens to be most
competitive as well. It has been observed that air passengers have access to many sources
regarding information of flights. The development of the internet and other related
technologies has brought a lot of facilities as well as options to the travelers. Therefore, it
cannot be denied that the present traveler is far knowledgeable and smart than ever before. It
hardly takes any time for them to find out who is providing what and at what cost. In such a
scenario, any and every flight carrier is compelled to think of competitiveness.
For Cathay Pacific, the management needs to rethink the way they have been
formulating the policy of the airline especially in terms of the cost to the traveler. The
company must understand that most of the airlines have already optimized the core ticket
price. However, supporting services are slowly becoming an important portion of the
customer spending and that has compelled the airlines to re-consider their revenue

management practices. Cathay must take note that luxury travel is not the only consideration
of passengers and it has to consider how to plan its revenue management. Most importantly,
the airline has to understand that apart from the core ticket price there are other aspects as
well that travelers consider these days like food, seat selection, added leg space, extra leg-
room and so on. Therefore, even if the company has to re-consider the ticket price it can
always compensate or go for additional revenue by considering the ancillary requirements of
the passengers. After all, things are at the cross-road of a chaotically competitive scenario and
the only way out would be selective decisions involving innovation and data.

Reference List
2036 Forecast Reveals Air Passengers Will Nearly Double to 7.8 Billion. (2019). Retrieved
from https://www.iata.org/pressroom/pr/Pages/2017-10-24-01.aspx
About Our Airline | History - Cathay Pacific. (2019). Retrieved from
https://www.cathaypacific.com/cx/en_US/about-us/about-our-airline/history.html
Cathay Pacific is a case study in how airlines need to change. (2019). Retrieved from
https://www.scmp.com/business/companies/article/2136745/cathay-pacific-case-
study-how-most-companies-fail-long-run-if
Cathay Pacific losing altitude | Business Vision. (2019). Retrieved from
https://bv.world/viability/business-models/2017/08/cathay-pacific-losing-altitude/
Douglas, I., & Tan, D. (2017). Global airline alliances and profitability: A difference-in-
difference analysis. Transportation Research Part A: Policy and Practice, 103, 432-
443.
Hammoud, G. A., Tawfik, H. F., & Elseyoufi, T. S. (2017). Challenges Facing Airline’s
Social Innovation. Journal of Tourism and Hospitality Management, 5(1), 62-72.
How airlines can gain a competitive edge through pricing. (2019). Retrieved from
https://www.mckinsey.com/industries/travel-transport-and-logistics/our-insights/how-
airlines-can-gain-a-competitive-edge-through-pricing
O’Connell, J. F. (2018). The global airline industry. In The Routledge Companion to Air
Transport Management (pp. 39-56). Routledge.
Once an Asian aviation pioneer, Cathay Pacific is now struggling to leave behind its past.
(2019). Retrieved from https://qz.com/993822/once-an-asian-aviation-pioneer-cathay-
pacific-is-now-struggling-to-leave-behind-its-past/

Pearson, J., O'Connell, J. F., Pitfield, D., & Ryley, T. (2015). The strategic capability of
Asian network airlines to compete with low-cost carriers. Journal of air transport
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Pyke, D., & Sibdari, S. (2018). Risk Management in the Airline Industry. In Finance and
Risk Management for International Logistics and the Supply Chain (pp. 293-315).
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Williams, A. (2016). The Growing Strategic Importance of Air Cargo Services.
In Contemporary Issues Shaping China’s Civil Aviation Policy (pp. 131-148).
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