Cathay Pacific Airways SWOT Analysis Assignment Writing Help
COMPANY OVERVIEW
Cathay Pacific Airways Limited (Cathay Pacific or "the company") is a Hong Kong-based international
airline, offering scheduled passenger and cargo services to 172 destinations in 39 countries and
territories. It is headquartered in Lantau, Hong Kong and employed approximately 29,900 people
as on December 31, 2012.
The company recorded revenues of HK$99,376 million ($12,811.6 million) during the financial year
ended December 2012 (FY2012), an increase of 1% over FY2011. The operating profit of the
company was HK$1,788 million ($230.5 million) in FY2012, a decrease of 67.5% compared to
FY2011. Its net profit was HK$916 million ($118.1 million) in FY2012, a decrease of 83.3% compared
to FY2011.
SWOT ANALYSIS
Cathay Pacific is a Hong Kong-based international airline, offering scheduled passenger and cargo
services to 172 destinations in 39 countries and territories. The company has a wide-spread
operational network, which enables it to gain access to key markets as well as expand its customer
base. Also, the strong fleet operations allow the company to boost its margins by effective utilization
of its asset base. However, a drastic change in the prices of the fuel can have a serious impact on
Cathay Pacific expenses which may in turn impact its profitability and marigns.
Opportunities
The global tourism industry has witnessed a strong recovery since its downfall due to recession in
2008. The recovery is primarily boosted by improved economic conditions worldwide. According to
the World Tourism Organization (UNWTO), international tourist arrivals grew by 4% in 2012 to a
total 1,035 million, up from 996 million in 2011. In terms of regions, Asia Pacific was the best performer
with a 7% growth in arrivals. The sub-region of South-East Asia and North Africa with 9% growth in
arrivals and the Central and Eastern Europe with 8% growth topped the ranking.
Furthermore, UNWTO forecasts international tourism to continue growing in 2013. Arrivals are
expected to increase by 3% to 4% globally. In terms of region, prospects for 2013 are stronger for
Asia and the Pacific with (5% to 6%) growth, followed by Africa with (4% to 6%), the Americas (3%
to 4%), Europe (2% to 3%) and the Middle East (0% to 5%). Thus, an expanding end market auger
well for Cathay Pacific as it is well positioned to capitalize on the growing global tourism industry.
Strong outlook of Asia-Pacific airlines industry
The Asia-Pacific airlines industry showed healthy growth over the last couple of years with the
exception of 2009. The industry is expected to continue the growth with high grow rates in the
forthcoming years up to 2016. According to MarketLine (a unit of Informa Plc), the Asia-Pacific
airlines industry had total revenues of $130.3 billion in 2012, representing a compound annual growth
rate (CAGR) of 4.7% between 2007 and 2012. Furthermore, the performance of the industry is
forecast to accelerate, with an anticipated CAGR of 19.3% for the four-year period 2012-2016, which
is expected to drive the industry to a value of $264 billion by the end of 2016. As Cathay Pacific has
a strong network in Asia-Pacific, it can leverage the positive outlook of airlines industry in the
Asia-Pacific region and enhance its revenues in the near future.
Fair outlook for the global air freight market
The global air freight sector is forecast to achieve fair growth rate over the forecast period to 2017.
The air freight sector recovered from substantial decline in 2009 by posting strong growth in value
and volume in the past few years. According to MarketLine (a unit of Informa plc), the global air
freight sector generated total revenues of $120,582 million in 2012, representing a CAGR of 0.4%
between 2008 and 2012. Furthermore, the performance of the sector is forecast to accelerate, with
an anticipated CAGR of 1.6% for the five-year period 2012-17, which is expected to drive the sector
to a value of $130,378.1 million by the end of 2017. Thus, the growing air freight sector provides a
significant opportunity for the company to further strengthen its topline and gain competitive advantage
over its peers.
Threats
Volatility in jet fuel prices
Jet fuel forms the main raw material used in the airline industry. The demand for petroleum and
related products has historically been cyclical and sensitive to the availability and prices of oil and
related feedstock. Historically, international prices of crude oil and refined products have fluctuated
widely due to many factors that are beyond the control of companies such as Cathay Pacific.
Moreover, the global jet fuel prices have seen a considerable increase over the past few years. For
instance, the jet fuel price was $12.7 per million British thermal unit (Btu) in 2009, and is expected
to reach $23.7 per million Btu in 2015. It is further forecast to grow to $27.6 per million Btu by 2030.
Furthermore, the political turmoil in the Middle East has impacted the oil prices.
Moreover, Fuel is the biggest single cost for Cathay Pacific and accounted for 41.1% of the total
operating expenses. Hence, a drastic change in the prices of the fuel can have a serious impact on
Cathay Pacific"s expenses which may in turn impact its profitability and margins.
Intense competition and price discounting
The airline industry is highly competitive. The principal competitive factors in the airline industry are
fares, customer service, routes served, flight schedules, types of aircraft, safety record and reputation,
code-sharing relationships, capacity, in-flight entertainment systems and frequent flyer programs.
Airline profits are sensitive to even slight changes in average fare levels and passenger demand.
Cathay Pacific's competitors include traditional network airlines, low-cost airlines, regional airlines
and new entrant airlines. Some of its competitors are China Airlines, China Southern Airlines, Japan
Airlines System, Korean Airlines, Lufthansa, Malaysia Airline System Berhad, Qantas Airways, and
Singapore Airlines.
In addition, price competition between airlines occurs through price discounting, fare matching,
increased capacity, targeted sale promotions and frequent flyer travel initiatives. A relatively small
change in pricing or in passenger traffic could have a disproportionate effect on an airline's operating
and financial results. Therefore, intense competition may erode the market share of the company
and may also increase pricing pressure which may distress its earnings.
Regulatory constraints
The airline industry is highly regulated. Airlines are subject to extensive regulatory and legal
compliance requirements that result in significant costs. The company's operations are subject to
numerous domestic and international laws, regulations, and restrictions. Cathay Pacific has operations
in many parts of the world and operates in a highly regulated environment. Non-compliance with
these laws, regulations, and restrictions could expose the company to fines, penalties, suspension,
or debarment, which could have a material adverse effect.The company expects to continue to incur
expenses in connection with complying with government regulations. Additional laws, regulations,
taxes, and airport rates and charges have been proposed from time to time that could significantly
increase the cost of airline operations or reduce the demand for air travel. If adopted, these measures
could result in increased costs of compliance, which in turn would increase obligations on Cathay
Pacific and thus adversely impact its margins.
Disclaimer-This SWOT Analysis Report is for academic use only and Copyright of Cathay Pacific Airways, Ltd. SWOT Analysis is the property of MarketLine, a Datamonitor business.
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