Cathay Pacific Airways: Price Discrimination Strategy Analysis

This assignment is an integrative study of the price discrimination strategy employed by Cathay Pacific Airways Limited. It begins with an abstract summarizing the core focus on price discrimination within the Hong Kong aviation industry, emphasizing Cathay Pacific's operations and service offerings, including ground handling, different flight classes, and loyalty programs. The paper investigates the company's price discrimination techniques, primarily third-degree discrimination, comparing its fare prices with competitors and evaluating its success through revenue and profit trends over a ten-year period. The study also explores the impact of incomplete information on market failure and concludes with recommendations for future pricing strategies. The research methodology involves secondary data collection and analysis using tables, graphs, and Excel software to interpret the quantitative data. The analysis covers how ticket prices vary across classes, elasticity of demand, and the company's overall performance, including a comparative analysis of ticket prices with competitors.

Running head: PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC
AIRWAYS LIMITED: AN INTEGRATIVE STUDY.
Price Discrimination Strategy by Cathay Pacific Airways Limited: An Integrative Study
Name of the Student
Name of the University
Course ID

1PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
AN INTEGRATIVE STUDY.
Abstract
Hong Kong is mostly regarded to have a free and competitive market economy. There are
however no laws that regulates degree of competition in the economy. The paper analyzes
price discrimination in Hong Kong aviation industry. The specific focus is on price
discrimination strategy of Cathay Pacific Airways Limited. Cathay Pacific is a Hong Kong
based airline company operating a large number of subsidiaries in the aviation industry of
Hong Kong. The company offers a range of services that include ground handling, different
flight classes, special offers for student tickets and domestic helper, catering services and in-
flight entertainment service. Members of macro polo club enjoys additional benefits
depending on their membership in categories like green, gold, silver and diamond. Ticket
fares vary both across cabin classes and travelling distance. The most common form of price
discrimination is the third degree discrimination where market is segregated between elastic
and inelastic demand. The fare prices of Cathay Pacific are compared with its domestic and
international competitors. The success of price discrimination strategy has been evaluated in
terms of revenue and profit trend over time. Because of stay loss in past two years and market
failure of the company due to incomplete information, the company needs to focus on
switching its pricing strategy.
Key words: Competition, regulation, price discrimination, market failure.

2PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
AN INTEGRATIVE STUDY.
Table of Contents
1.Introduction.............................................................................................................................3
1.1 The company’s product/service portfolio........................................................................3
1.2 The market for this product/service.................................................................................3
2. Case Study Design and Planning...........................................................................................4
2.1 Objectives and research question.....................................................................................4
2.2 Data Collection method....................................................................................................5
2.3 Data Analysis method......................................................................................................6
3. Analysis and discussion.........................................................................................................6
3.1 The price discrimination technique used by the company...............................................6
3.1.1 Different types of seat offered by Cathay Pacific Airways Limited.........................6
3.1.2 Prices of different types of ticket..............................................................................8
3.1.3 Price elasticity of demand for different types of seats............................................14
3.1.4 Technique of price discrimination..........................................................................15
3.2 Comparative analysis of ticket price of Cathay Pacific Airways Limited and its
competitors...........................................................................................................................16
3.3 Performance of the company for the last ten years........................................................19
3.4 Incomplete information and market failure....................................................................20
4. Conclusion and recommendation.........................................................................................21
4.1 Conclusion......................................................................................................................21
4.2 Recommendation............................................................................................................22
5. References............................................................................................................................23

3PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
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1.Introduction
Cathay Pacific Airways Limited is a flag carrier of Hong Kong with head office
located at Hong Kong international airport. The parent company and its subsidiary provide
scheduled cargo and passenger services covering 190 destination spread across 60 countries
worldwide. Cathay Pacific operate in a commercial airline industry. Additionally, they are
considered as one of the largest cargo airline in the international market (cathaypacific.com
2018).
1.1 The company’s product/service portfolio
Cathay Pacific Airways Limited along with its subsidiary operates as an airline
providing scheduled passengers and cargo services to nearly 200 destinations in Asia, North
America, Europe, Australia and Africa. Operations of the company are divided into two
segments – airline and non-airline business. Operations of the company are mainly operated
to and from Hong Kong. Ground handling is one of the primary service of the company1.
The company offers different flight classes. These are first class, business class, premium
economy class and economy class2. Other services of the company include in-flight
entertainment service and catering services.
1.2 The market for this product/service
Market power of a company depends on structure of the market in which it operates.
Air industry in most countries an oligopoly market structure such that few large companies
dominate the market (Lam 2000). The main competitors of Cathay Pacific Airways are
Singapore Airlines, Air China, SkyWest, Republic Airways and International Consolidated
Airlines. The industry in which Cathay Pacific operates have the following oligopolistic
1 Ground handling: At the beginning of 2007, Cathay Pacific introduced more methods for flights check in.
Among the various methods launched one was self-check in using a kiosk at the Hong Kong International
Airport and some other selected destination and check in via a cell phone. Cathay Pacific is also known for
launching first boarding pass mobile application and dubbed CX mobile.
2 First class: First class seats have 6 seats in a configuration of 1-1-1. Passengers travelling in first class cabin
can convert their seats to a fully lie flat bed with a measure of 21 inch × 81 inch.
Business class: The company launched a new seat for the category of business class in 2011.The new seat
features a herringbone and has a seat arrangement in configuration of 1-2-1. Like first class seat, business class
seat can be also converted to a fully flat with a width of 21 inch and length of 82 inch
Premium economy class: Cathay Pacific launched its premium economy class in March in 2012. The seat pitch
is six times more time than that of the economy class. The seats are bigger and are wider as compared to
economy class
Economy class: Cathay Pacific introduced its new economy class in March 2012. The economy class seats have
six-inch recline. The seats have 32-inch pitch and 17.5-inch width.

4PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
AN INTEGRATIVE STUDY.
features. Product differentiation3 is one of the key features of the market. Other
characteristics of oligopoly market include high entry barriers and limited competition from
Hong Kong4.
Rest of the paper is designed as follows. Section 2, briefly summarizes design and
planning of the case study. Section 3, provides analysis and discussion of price discrimination
strategy of Cathay Pacific. Finally, section 4 draws conclusion depending on discussion in the
three previous sections and recommendation are given for future marketing strategy of the
company.
2. Case Study Design and Planning
This section provides a brief outline for detailed research analysis. The first important
thing for the research analysis is to clearly specify the research objectives. Depending on the
research objectives the research questions are framed to address the research goals. The next
thing is to determine the data collection method. The last and most import thing that this
section summarizes is the technique of data analysis.
2.1 Objectives and research question
The research paper aims to evaluate price discrimination technique used by Cathay
Pacific Airways Limited. More specifically the objective is to evaluates success of price
discrimination techniques of the company. Objective of the paper is as follows.
 To find out how elasticity for different seats varies among different consumers
 To find out the technique of price discrimination
 To find out how ticket price of Cathay Pacific differs from that of its competitors
 To find out trend in revenue and profit over the last ten years
 To find out how incomplete information leads to market failure
3 Product differentiation: All the competing companies in the industry operates in the similar international
routes. As the competing firms offer similar services at the similar prices there is some degree of differentiation.
Products are differed in terms of design of seats and offered amenities.
4 High Barriers to entry
There are high entry barriers in the industry. This indicates the industry operates in an oligopoly
market. The entry restrictions are not only in the form of government intervention but also in there is high cost
for huge capital requirement and other operating expenses that are required to a business in the industry.
Limited competition from Hong Kong
There are although similar airlines such as AirAsia offering services to the same route but they do not
operate directly from Hong Kong and hence, cannot capture the majority of Hong Kong Market. Cathay Pacific
provides flight services across Asia that are in high demand due to reputation of brands and customer loyalty.

5PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
AN INTEGRATIVE STUDY.
Based on the research objectives, following research questions are framed
 How ticket prices vary among different classes?
 How elasticities of demand vary for different types of seat and for different
consumers?
 What is the technique of price discrimination of the company?
 How ticket price of Cathay Pacific is different to that of its competitor?
 What is the trend of revenue and profit of the company for the last ten years?
 How incomplete information leads to market failure for the company?
2.2 Data Collection method
Data is considered as the fundamental need for certifying the success in the research
study. The collection of appropriate data depends on the nature of the study and the targeted
result to be obtained. In this connection, data are classified into two categories based on
technique of data collection – primary data and secondary data. Primary data refers to the
data collected by the researcher following the process of sample survey or interview.
Secondary data in contrast are collected from secondary sources such as books, Journals and
official websites in order to understand the speculative condition and historical presentation.
This helps to analyze the current trend in the identified research issues (Dul and Hak 2007).
Researchers mostly rely on secondary data sources because of their easy availability from
different online and offline sources. The primary data are considered as more reliable than
secondary data as they are directly collected by the researchers. For purpose of the current
study secondary data has been collected.
Data are again of two types based on their nature – quantitative data and qualitative
data. Qualitative data represents specific attribute of the chosen variable. While quantitative
data refers of fragmented information that can be evaluated to deduce required information to
obtain targeted research result. The quantitative data offers information on subject of
inclination towards human perception considering specific study information (Hofisi, Hofisi
and Mago 2014). The paper collets secondary data on fares of different types of seats has
been collected from official website of Cathay Pacific Airways Limited and from the website
of Hong Kong airlines websites. The data on company’s profit for ten years has been
collected from annual reports of the company that are available in the company’s site. The
collected data are then analyzed following particular data analysis technique that has been
discussed in the following subsection.

6PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
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2.3 Data Analysis method
The collected data has been analyzed following various analytical methods. Selection
of suitable analytical technique is crucial to achieve targeted research goal and firm
conclusion. The effective data analysis technique is also required to maintain transparency
and interpret the collected data. For this paper, quantitative data on prices and profits have
been presented with helps of simple table and graphs. This helps to simplify the process of
interpretation of collected data. The excel software has been used to prepare the required
tables and graphs and interpret the data.
3. Analysis and discussion
The section analyzes the price discrimination techniques and its impact on company’s
performance. This section is the most vital sector as it analyzes real world data and helps to
understand the particular method of discrimination and its likely consequences.
3.1 The price discrimination technique used by the company
An important feature of commercial airline industry is application of price
discrimination strategy. In economics, price discrimination refers to the strategy of selling
same good at different prices for different group of consumers. Price discrimination in the
airline industry is based on several criteria. These include quantity brought, time of using the
service, age of customers and time of buying. The primary principle behind the
discrimination strategy is that firms try to take advantage of differing price elasticity of
demand among customers and hence capture as much surplus as possible (Chandra and
Lederman 2018). A higher price is charged when demand is inelastic while a low price is
charged with elastic demand. Cathay Pacific adapt the strategy of high degree of price
discrimination. This is possible because of the considerably high market power of the
company. Price of tickets varies significantly among tickets with varying restriction (Dana
and Williams 2018). For example, fares vary among different groups named Economy
supersaver, economy save, economy special, economy core, economy standard and economy
flex.
3.1.1 Different types of seat offered by Cathay Pacific Airways Limited
The company offers various classes of flight tickets in order to satisfy its customers.
The various classes of airline tickets offered by the company include first class, business

7PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
AN INTEGRATIVE STUDY.
class, premium economy class, economy class, student ticket and domestic helper ticket. A
brief description of each type of seats and associated facilities are provided below.
First class
First class seats have 6 seats in a configuration of 1-1-1. Passengers travelling in first
class cabin can convert their seats to a fully lie flat bed with a measure of 21 inch × 81 inch.
Different features of the seat include a message function, an attached personal closet, an
ottoman for seating of guests and a personal 18.5-inch HD television (cathaypacific.com
2018). The first class seats are available only on board selected aircraft of Boeing 777-
300ER.
Business class
The company launched a new seat for the category of business class in 2011.The new
seat features a herringbone and has a seat arrangement in configuration of 1-2-1. Like first
class seat, business class seat can be also converted to a fully flat with a width of 21 inch and
length of 82 inch. Each seat has an attached small-enclosed cabinet and an adjustable HD
television of 18.5 inch. The regional business class are provided on aircraft Boeing 777s and
selected Airbus A330-300s.
Premium economy class:
Cathay Pacific launched its premium economy class in March in 2012. The seat pitch
is six times more time than that of the economy class. The seats are bigger and are wider as
compared to economy class. Each seat has a meal table, footrest, cocktail table and personal
television of 10.6 inch, a power outlet and extra space for personal stowage.
Economy class:
Cathay Pacific introduced its new economy class in March 2012. The economy class
seats have six-inch recline. The seats have 32-inch pitch and 17.5-inch width. The old
economy class seats have now been replaced by new long-haul configured seats. Since 2017,
all the Boeing B777 retrofitted to 10 abreast from earlier 9 abreast and increases number of
economy class seats from 350 to 396 (cathaypacific.com 2018).
Student ticket:
Studying overseas is a matter of happiness and is filled with excitement both for
students and parents. Cathay Pacific adds to the pleasure with student tickets and Parent

8PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
AN INTEGRATIVE STUDY.
bundle ticket to fulfil the dreams of students and parents. Student can also enjoy additional
baggage allowances. The company offers protection to overseas student. It provides 24hours
emergency assistance services. It also carries medical expenses up to HK$1,000,000 for
confinement and outpatient treatment. Additionally, students are offered 5 percent discount
on premium seats.
Domestic helper ticket
Cathay Pacific provides exclusive fares to the domestic helpers from Philippines
being employed in the Hong Kong Special Administrative Region, Mainland China or Macau
Special Administrative Region (cathaypacific.com 2018). The domestic helpers’ fares are
also available to Cambodia and Indonesia.
3.1.2 Prices of different types of ticket
Cathay Pacific Airways Limited employs considerable price discrimination strategy
within the market. In order to device such strategy the company needs significant market
power. An example of price discrimination by the company can be seen in differences in
tickets fares with different restrictions.
Table 1: Different ticket fares relating to different family class
Fare Family Fare (in HKD)
Economy
Supersaver
7350
Economy Save 7920
Economy Special 10030
Economy Core 16080
Economy Standard 18160
Economy Flex 32310
(Source: cxeconomics.weebly.com 2018)

9PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
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Economy
Supersaver Economy Save Economy
Special Economy Core Economy
Standard Economy Flex
0
5000
10000
15000
20000
25000
30000
35000
7350 7920 10030
16080 18160
32310
Fare (in HKD)
Figure 1: Difference in family fares for Cathay Pacific Airways Limited
(Source: cxeconomics.weebly.com 2018)
Table and figure above shows how Cathay Pacific discriminates family fares among
the different class. The cheapest fare is for economy super saver with fare being 7350 Hong
Kong Dollar. The fare of economy save is slightly above than that of economy supersaver
with fare for economy fare being 7920 HKD. The fare of economy special is HKD 10030.
Fares of economy core and economy standard are though close to each other but fare is
higher compared to that that of economy special. The fare of economy flex is the highest with
fare being almost double of the economy standard.
Table 2: Fares of different flight class for varying distances covered
Distance Zone Economy Premium
Economy
Business
Class
First
Class
Ultra short (1-750 miles) 7500 11000 16000 25000
Short (751- 2750 miles) 10000 18000 25000 40000
Medium (2751-5000 miles) 22000 30000 45000 70000
Long type 1(5001-7500
miles)
30000 40000 65000 100000
Long type 2 (5001-7500
miles)
30000 45000 70000 110000
Ultra long ( 7501+miles) 42000 60000 85000 125000
(Source: loyaltylobby.com 2018)

10PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
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Economy Premium
Economy Business Class First Class
0
5000
10000
15000
20000
25000
7500
11000
16000
25000
Ultra short (1-750 miles)
Figure 2: Fare of different class for ultra-short distances
(Source: loyaltylobby.com 2018)
Economy Premium
Economy Business Class First Class
0
5000
10000
15000
20000
25000
30000
35000
40000
Short (751- 2750 milies)
Figure 3: Fare of different class for short distances
(Source: loyaltylobby.com 2018)

11PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
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Economy Premium
Economy Business Class First Class
0
10000
20000
30000
40000
50000
60000
70000
22000
30000
45000
70000
Medium (2751-5000 miles)
Figure 4: Fare of different class for medium distances
(Source: loyaltylobby.com 2018)
Economy Premium
Economy Business Class First Class
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
30000
40000
65000
100000
Long type 1(5001-7500 miles)
Figure 5: Fare of different class for long distances (type 1)
(Source: loyaltylobby.com 2018)

12PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
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Economy Premium
Economy Business Class First Class
0
20000
40000
60000
80000
100000
120000
30000
45000
70000
110000
Long type 2 (5001-7500 miles)
Figure 6: Fare of different class for long distances (type 2)
(Source: loyaltylobby.com 2018)
Economy Premium
Economy Business Class First Class
0
20000
40000
60000
80000
100000
120000
140000
42000
60000
85000
125000
Ultra long ( 7501+miles)
Figure 7: Fare of different class ultra- long distances
(Source: loyaltylobby.com 2018)
Table 2 presents discrimination of fares depending on distance travelled. Total
distance travelled has been classified into six zones – ultra short, short, medium, long type 1,
long type 2 and ultra-long. For economy class, the fares vary from HKD 7500 to HKD 42000
between ultra-short and ultra-long distances. For premium economy fare ranges between
HKD 11000 and 60000. The fare of business class varies is higher compared to economy and
premium economy (cathaypacific.com 2018). For business class, fare for ultra-short and

13PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
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ultra-long varies between 16000 HKD and 85000 HKD. Fare for first class is highest with
ranges between 25000 HDK and 125000 HKD.
Table 3: Comparison of fares for different class (Hong Kong to Bangkok)
Hong Kong to Bangkok
Cabin class Fares (HKD)
Economy 3073
Premium Economy 5283
Business 9153
First class 14568
(Source: cathaypacific.com 2018)
Economy Premium Economy Business First class
0
2000
4000
6000
8000
10000
12000
14000
16000
3073
5283
9153
14568
Fares (HKD)
Figure 8: Fares for different class (Hong Kong to Bangkok)
(Source: cathaypacific.com 2018)
The figure above compares fare of flight tickets of different classes for a one way trip
from Hong Kong to Bangkok. The fare of economy class is HKD 3073. The fare for premium
economy class is HKD 5283. The business class fares exceed that of economy and premium
economy class with the fare being HKD 9153. The first class fare is the highest among the
four classes. The cost of one way trip from Hong Kong to Bangkok is nearly HKD 14568.
In addition to fare price discrimination based on different flight classes passengers can
enjoy additional benefits in terms of exclusive membership in the Macro Polo Club. The

14PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
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Macro Polo Club is a loyalty program of Cathay pacific which is designed to offer additional
reward to the most valuable customers by providing them additional services and benefits
that might enhance travel experience of the passengers (cathaypacific.com 2018). There are
four tiers of membership in the Macro Polo Club – Green, Silver, Gold and Diamond. Each
tier offers its members some exclusive benefits.
Green
For “Green” membership a payment of USD 100 is required. This gives passengers all
the benefits of Green member. After completion of one year, the member can earn 20 club
points or can pay USD 100 for membership renewal. In addition to benefits in terms of extra
leg rooms, priority boarding, extra baggage redemption and lounge access there are additional
benefits in terms of holding fare. Members can hold flight booking and fare free up to 3 days
when members book tickets on the website at least 7 days in advance. Friends or Family can
enjoy the holding period for free of charge.
Silver
Silver members enjoy benefits for up to 300 club points. On earning 450 club points,
the silver members receive two business class lounge passes
Gold
The standard benefit to gold members is to enjoy opportunity to earn 600 club points.
The gold members earn benefit of 15 kg of additional checked baggage and allowance of
additional 10 kg special cabin baggage. Here, on earning 800 club point, the members can
have two business class lounge passes. On earning 1000 club points, a member can earn four
bookable upgrades.
Diamond
Diamond member enjoy the benefits of earning 1200 club points. In most flights, the
diamond members enjoy allowance for 20 kg and 1 pc of additional checked baggage
allowance and 15 kg special baggage allowance. The members here enjoy two first or
business class Lounge passes on earning club points of 1400 (cathaypacific.com 2018). On
earning a club point of 1600, the members have four bookable upgrades.
3.1.3 Price elasticity of demand for different types of seats

15PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
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The price elasticity of demand is extremely important in the decision of price
discrimination. Price elasticity of demand measure proportionate change in demand for a
corresponding proportionate change in price. Demand in airline industry is highly unstable as
demand is subject to current market condition (Dai, Liu and Serfes 2014). Price of airline
tickets are highly affected by competition as it gives customers to switch to other cheaper
flights. For aviation industry demand is highly influenced by the purpose of travel. Customers
typically fly either for business or for pleasure. Passengers travelling for pleasures constitute
elastic demand. That means demand is highly responsive to price. This is because they can
postpone their plan or chose some other means of travelling. In contrast, business travelers
have a relatively inelastic demand (Bergantino and Capozza 2015). They cannot adjust their
demand for quantity of services depending on fluctuation of price. As purpose of travelling is
much more important than that for leisure purpose, demand is less elastic. As shown from the
fare chart of Cathay Pacific, fare of the most expensive economy ticket is almost four times
more expensive compared to the cheapest fare. This indicates ability of the company to
discriminate fares depending on elastic of demand among different groups of customers
(Edb.gov.hk 2018) Different group of customers have different types of requirement affecting
elasticity of demand for passengers.
3.1.4 Technique of price discrimination
Price discrimination refers to a strategy that comprises method of charging different
prices to different customers of the same good or services. Depending on the technique of
differentiation price discriminations are of three types – first degree price discrimination,
second degree price discrimination and third degree price discrimination. Under first degree
price discrimination business knows the exact willingness to pay for consumers and hence,
eliminates all the consumer surplus in the market (Baye, Prince and Squalli 2006). In second
degree price discrimination, business charges different prices for goods and services
depending on preference of group of customers. In case of third degree price discrimination,
business divides the market into several segment depending on subset of customers.
The applicable form of price discrimination for Cathay Pacific Airways Limited is
third degree price discrimination. The two market segment for the airline company are
business travelers and leisure travelers. The two groups have different goals for travelling.
Business travelers

16PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
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The business travelers tend to book flight tickets before they fly. Customers belonging
to business traveler group generally value comfort and time over the cost. They travel for
urgent purposes such as to attend some urgent meeting (Mumbower, Garrow and Higgins
2014). Business travelers generally plan trip for a relatively shorter time horizon. Cost of
tickets are generally carried by their company.
Leisure travelers
In contrast to business travelers, leisure travelers plan their holidays in advance. They
are highly sensitive to price change as money that is saved in flight can be spent for planning
a better trip or accommodation. The leisure travelers are ready to adjust with comforts or
time. There mostly consider flying as an adventure rather than a necessary like business
travelers.
Figure 9: Market segmentation and third degree price discrimination
(as created by Author)
The market segment 1 defines market for business travelers. The demand or AR curve
is relatively inelastic or steep in nature. The company thus can charge a higher price, P1 for
business travelers. The market segment 2 indicates market segment for leisure travelers. The
demand curve here is relatively flatter indicating less elastic demand (Czerny and Zhang
2014). It is thus reasonable for the company to charge a relatively low price P2 for leisure
travelers.

17PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
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3.2 Comparative analysis of ticket price of Cathay Pacific Airways Limited and its
competitors
There are several competitors of Cathay Pacific Airways Limited. The close
competitors of Cathay Pacific operating similar services to the same route are Hong Kong
Airlines, Singapore Airlines, Emirates airlines and others. The close competitors offer similar
kind of service at an almost same price but with high degree of product differentiation.
Product differentiation can be found in terms design of seats and associated facilities. The
table below compare fare of Cathay Pacific Airways Limited to that of its competitors.
Table 4: Comparison of fares between Cathay Pacific Airways Limited and that of
Hong Kong and Singapore Airlines
Fares (HKD)
Cabin class
Cathay
Pacific Hong Kong Airlines
Singapore
Airlines
Economy 3073 3296 4966
Business 9153 4890 14226
(Source: cathaypacific.com 2018, Hongkongairlines.com 2018, singaporeair.com 2018)
Economy
Business
0
2000
4000
6000
8000
10000
Tickets fare of Cathay Pacific and Hong Kong
Airlines
Cathay Pacific Hong Kong Airlines
Figure 8: Comparison of ticket fare between Cathay Pacific and Hong Kong Airlines
(Source: cathaypacific.com 2018, Hongkongairlines.com 2018)

18PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
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As shown from the above figure the fare of economy class though is close between
Cathay Pacific and Hong Kong Airlines. However, fares for business class in Cathay Pacific
is considerable higher compared to Hong Kong Airlines.
Economy Business
0
2000
4000
6000
8000
10000
12000
14000
16000
3073
9153
4966
14226
Ticket fare of Cathay Pacific and Singapore Airlines
Cathay Pacific Singapore Airlines
Figure 9: Comparison of ticket fare between Cathay Pacific and Singapore Airlines
(Source: cathaypacific.com 2018, singaporeair.com 2018)
So far as Singapore Airlines is concerned, the fares for both economy and business
class is higher relative to Cathay Pacific.
Table 5: Comparison of fares between Cathay Pacific Airways Limited and that of
Emirates Airline
Fare (HKD)
Cabin class Cathay Pacific Emirates
Economy 9153 2733
Business 9153 5833
First class 14568 13457
(Source: cathaypacific.com 2018, emirates.com 2018)

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Economy Business First class
0
2000
4000
6000
8000
10000
12000
14000
16000
9153 9153
14568
2733
5833
13457
Ticket fares of Cathay Pacific and Emirates
Cathay Pacific Emirates
Figure 10: Comparison of ticket fare between Cathay Pacific and Emirates
(Source: cathaypacific.com 2018, emirates.com 2018)
When the ticket fares for Cathay Pacific is compared to that Emirates airlines, fares of
all the three classes (economy, business and first class) is more expensive in Cathay Pacific
compared to that in UAE based airline Emirates.
3.3 Performance of the company for the last ten years
In order to analyze performance of the company trend in revenue, net income and net
profit margin over the last ten years have been examined. Revenue of a firm is the product of
unit price and volume of quantity sold. By subtracting necessary expense from revenue net
income is obtained. Net profit margin represents net income as a percentage of total revenue.
The table below represents trend in revenue, net income and net profit margin of Cathay
pacific in the last ten years.
Table 10: Performance of Cathay Pacific Airways Limited in last ten years
Year
Revenu
e
Net
income
Net profit
Margin
2008 86,578 -8,558 -9.88
2009 66,978 4,694 7.01
2010 89,524 14,233 15.90
2011 98,406 5,501 5.59
2012 99,376 916 0.92
2013 100,484 2,620 2.61
2014 105,991 3,150 2.97
2015 102,342 6,000 5.86

20PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
AN INTEGRATIVE STUDY.
2016 92,751 -575 -0.62
2017 97,284 -1,259 -1.29
(Source: cathaypacific.com 2018)
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
-20,000
0
20,000
40,000
60,000
80,000
100,000
120,000
-15.00
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
Performance of Cathay Pacific
Revenue Net income Net profit Margin
Figure 11: Revenue, net income and net profit margin of Cathay Pacific (2008-2017)
(Source: cathaypacific.com 2018)
The company earned revenue of 86578 HK million in 2008. During this year net
income was negative indicating that total expenses exceeds that of its total earnings. The net
profit margin was recorded to be -9.88 percent. Net income gradually recovered with increase
in revenue. In the next two consecutive years both net income and net profit margin increases
steadily indicating profitable operation of the company. Net income again declined during
2011 and 2012 along with a very small profit margin of 5.59 and 0.92 respectively
(cathaypacific.com 2018) Revenue recovered and net income continued to increase until
2015. In the last two years of 2016 and 2017, the company experienced a negative net income
indicating net loss on part of the company. The net profit margin in the year 2016 and 2017
were -0.62 percent and -1.29 percent respectively. The poor performance in the last two years
indicate poor pricing strategy of the company. The poor hedging bet fuel price is one factor
that pulled up costs over the revenue. Intense competition among arising from rivals in
Middle Eastern and mainland China pushed the company to suffer a loss in the past two years
(reuters.com 2018). The company thus needs to change its pricing strategy to recover loss and
again experience period of economic profit.
3.4 Incomplete information and market failure

21PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
AN INTEGRATIVE STUDY.
Market failure refers to a situation where efficient functioning of a market is
hampered due to several external forces. In the practice of price discrimination firms may not
always have complete information regarding true value of a ticket from perspective of
customers. This leads to inefficient pricing or market failure of the company. There is
evidence of long term market failure of the Cathay Pacific. The company has solely focused
on restoring the brand value. This weakens position of the company compared to its
competitor Asian Travel that has been driven by lower price instead of premium services.
Cathay Pacific is facing an Asian war between price and value. The competitive advantage
now has been increasingly based on ticket price instead of value of service (scmp.com. 2018)
In response to consecutive periods of economic loss Cathay Pacific has made changes in
order to generate more revenues and focused on restoring value of brand and premium
services. It however failed to make any difference as profits of Asian air has been driven by
competitive advantage in terms of price rather than premium services.
4. Conclusion and recommendation
This section briefly summarizes findings of the paper and provides recommendation
for future progress of the company.
4.1 Conclusion
The main objective of this research paper is to evaluate the price discrimination
techniques by Cathay Pacific Airways Limited. The paper firstly tries to find out availability
of different variety of seats by the company, associated facilities and ticket fares for different
flight classes. The method of price discrimination has been evaluated depending on price
elasticity of demand of different group of customers. The report also compares ticket fares of
Cathay Pacific to that of its competitors. The success of price discrimination strategy depends
on performance of the company measured in terms of trend in revenue and profit. Finally, the
paper evaluates how incomplete information results in market failure of the company.
The analysis of ticket fares reveals that prices differs significantly across different
flight classes. Tickets are the most expensive for first class followed by business class,
premium economy and economy class. Tickets price also varies across family fares like
economy, economy saver, economy standard and economy flex. Fare price also varies across
distance travelled. Tickets fares are ranged from ultra-short to ultra-long. The company uses
third degree price discrimination by dividing the market into two segments – business
travelers and leisure travelers. Demand for business travelers is relatively price inelastic

22PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
AN INTEGRATIVE STUDY.
while demand for leisure travelers is price elastic. The company therefore charges a higher
price for business travelers compared to that for leisure travelers. The fares of Cathay Pacific
are considerably higher compared to Hong Kong airlines and Emirates airlines. The ticket
fares of Singapore Airlines exceed the fares of Cathay Pacific. Revenue and profit trend of
the company over the last ten years revealed that the company has recorded considerable loss
in the past two years. High fuel price and intense competition caused the company to suffer a
loss. Lastly, the incomplete information and lack of appropriate strategy results long term
market failure for the company.
4.2 Recommendation
Performance trend of the company shows that in the last two years the company has
recorded considerable loss. That means the company needs to change its existing pricing
strategy. The company’s strategy of exclusive focus on increasing brand value lags the
company behind its competitors. The company should keep in mind that success of its
competitors is largely driven by pricing not by premium brand value. The company should
focus on charging fares related to its cost. The price should be non-discriminatory and should
be applied equitably. There should be no discrimination between different groups of
customers. The location specific cost could best serve the aspects of equity and efficiency.
The company should adapt an alternative pricing strategy of “Integrated Network Pricing”.
This type of pricing strategy is based on location specific flight charging.

23PRICE DISCRIMINATION STRATEGY BY CATHAY PACIFIC AIRWAYS LIMITED:
AN INTEGRATIVE STUDY.
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