BSc (Hons) Business and Management Studies Level 2 Day Time Intakes 4
Economic of Industry Assignment
CATHAY PACIFIC, founded by Roy.C.Farrell and Sydney H de Kantzow in 1946. It is now an international airline registered and based in Hong Kong serving over 180 destinations in more than 40 countries. It is more like an Oligopoly company because even though it is already a giant in financial and market network, small airlines firm could still come in and challenge its places but only in a short run.
Cathay Pacific provides both airline business and non-airline business such as passengers and cargo operations and catering, ground handling and aircraft ramp handling services. Cathay Pacific is also one of the largest airline company in Asia Pacific region. According to Forbes, up to date of May 2014, Cathay Pacific has USD$7.45 billion market cap and ranked as 972 in “Global 2000”. Cathay Pacific’s vision is “to be the world’s best airline”
Strengths. First, they have strong financial backup and an advantage of market shares since Cathay Pacific has both corporate, joint venture and subsidiary with 14 companies up to 2010. Cathay Pacific also owns 100 percent of some of the companies’ market shares. Furthermore, Cathay Pacific is ranked as the 8th most profitable airline and place 17th the biggest airline in the world. Therefore Cathay Pacific has a very strong financial back up in its own market.
Second, Cathay Pacific is a hub carrier in Asia Pacific region and worldwide as well. Up to 2011 they already have over 110+ destinations worldwide within 42 countries and Dragon Air, their subsidiary company have 44 destinations in Asia Pacific region.
Third, entry barrier. Since Cathay Pacific airline has such huge amount of assets and dominant relationship with companies in the market, it is extremely hard for new challengers to enter the market and challenge Cathay for its place. Because if you wanted to do so, you will required to have the almost same amount of assets or even more to start up the business and compete with Cathay.
Weakness. First, High Labor costs. Cathay Pacific is currently hiring 20,000 or more employees worldwide. To carry such huge amounts of employees will be a very tough work because it is very hard to control and ensure every employees are well behaved on their duties. Labor riots and complains were increasing recently.
Second, Cathay Pacific failed to predict the fuel market price, they rely on international onward moving traffic too much which as a result, in 2011, their 41.5 percent of their operating costs are fuel expenses.
Make or Buy. If you look into their annual report 2013, note to account’s Operating profit, you can see that they listed “land and buildings”, “aircraft and related equipment” under the name of Operating lease rentals. It is proven that Cathay Pacific is not making their own aircraft and ownership of the land where they run their business so they could have least cost of production.
Transaction Cost. Although Cathay Pacific is buying and renting their aircrafts and properties, which may leads higher the transaction costs but, Cathay Pacific has subsidiaries with Cathay Pacific Catering Services (HK) Limited and Vogue Laundry Services Limited with both 100 percent ownership. Since Cathay Pacific is a services company which provide a comfort journey with good food and beverages in the air, the ownership of catering company and laundry company will be a great assets to minimize the transaction costs from the catering and laundry operating expenses, it is because they are the second highest costs that the company are sending.
Competitive advantage. The entry to Mainland China is absolutely a solid competitive advantage to Cathay Pacific. After taking over DragonAir, Cathay Pacific has operating more than 23 passenger routes into China, where one of the most...
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