Business Plan
1. Executive Summary
Airline business is a challenging business. It has been noted to be the most competitive business in the world. Marketing executives should also be competitive to cope with the challenges of this kind of business.
Cathay Pacific is one of the market leaders in the airlines business in Asia. The company has it great opportunities. The airline is committed to quality service. In addition, it has its competitive advantage. Cathay Pacific has great opportunities of expanding and improving its services.
This paper is a business plan for Cathay Pacific Airways to exploit the business opportunities that are open to the company.
2. Business Background
Cathay Pacific Airways Limited is an Asian commercial airline founded in 1946 which is based in Hong Kong and offering passenger services and cargo services to 102 destinations world-wide. It is a flag carrier of Hong Kong with its main base at Hong Kong International Airport.
Cathay Pacific is the major shareholder in AHK Air Hong Kong Limited, an all cargo carrier that offers scheduled services in the Asia region, and is a shareholder in Hong Kong Dragon Airlines Limited.
“The airline business is a challenging operation. Operational information can be very dynamic and keeping customers well informed is a daunting task. Information, fares and schedules have to be accurate; sales promotions and marketing activities are constantly changing and typhoons cause last minute schedule changes or cancellations.” ()
The opportunity and strategy
Despite the various challenges in which airlines faces, there is an opportunity for e-business. It has been known today that travel and the Internet have a natural association. Cathay Pacific Airways has the potential of this partnership and be successful in consumer e-commerce. In 2000, Cathay Pacific Airways forged ahead with an ambitious goal to become Asia’s leading e-business airline and promptly set up a new cross-functional department staffed by experienced airline people and newly recruited e-business professionals.
Cathay Pacific Airways is committed to invest in services that enhance value to their customers while improving productivity and reducing information technology costs. With this, the company has leveraged to e-business.
Cathay Pacific Airways is known to be Hong Kong’s leading airlines gives them the opportunity to acquire more customers and generate more revenues. People would have more confidence on airlines that are recognized by the award winning bodies because it would make the people have more confidence on flying with the said airlines.
In addition, with Cathay Pacific Airlways’ online booking, they give more convenience to their customer giving them the chance to attract more customers especially with people that have no time to go to airlines branches for bookings.
The airline has also an opportunity of technology advancement for easier transaction and operations and for more convenience for customers and employees. Moreover, with its recognition, the airline attracts more opportunities of expansion.
Furthermore, the company has design learning experiences for the employees to deliver consistent good services to customers. The company has encouraged a culture of self responsibility, courage to innovate and openness to collaborate within the organization. Additionally, e-learning strategy cut the time required for certain training courses. ()
The online brand building technique has also been a good strategy for the company. “The airline’s approach towards reaching its audience by building online partnerships with leading brands such as Universal McCann, CNN, Yahoo! and ZUJI.com has made it one of the major online marketers in Hong Kong and across the Asia Pacific region.”()
Source of competitive advantage
The source of Cathay Pacific Airways competitive advantage is from the continuous dedication to high-quality service which has elevated the company to new heights of success in the highly-competitive airline industry. In addition, Cathay Pacific has always relied on Information Technology (IT) to meet their infrastructure demands while gearing up its internal operations for efficiency. IT provides the airlines with two distinct advantages—an efficient reservation system and an engineering system that keep the airlines’ planes constantly fit for air travel.
“Cathay Pacific is renowned for its award winning “Service Straight From The Heart” both on the ground and in the air. As the airline of Hong Kong, Cathay Pacific is committed to enhancing Hong Kong as a leading global aviation and logistics hub.” ()
Management Background, Qualities and Experience
Name
Position
Background and Experience
Senior Management
Chairman
CBE, joined John Swire & Sons Limited in 1978 and has worked with the group in Hong Kong, Australia and Papua New Guinea. He is also Chairman of Swire Pacific Limited and John Swire & Sons (H.K.) Limited, and a director of Swire Properties Limited. He served as Executive Director of Swire Pacific’s Trading and Industrial Division from 2000 to 2005.
Chief Executive
He joined Swire in 1977 and has worked with the group in Hong Kong, Mainland China and the Asia Pacific region. He has been a director of Cathay Pacific since 1997 and was appointed Chief Operating Officer in 1998. He served as Chief Executive of Hong Kong Dragon Airlines Limited from 1994 to 1997.
Chief Operating Officer
He joined Swire in 1977 and has worked with the group in Hong Kong, Australia, the Philippines, Canada, Japan, Italy and the United Kingdom. He served as Director Corporate Development from 1996 to 2004 and is a Director of Hong Kong Aircraft Engineering Company Limited, Dragonair and Air Hong Kong.
Finance Director
He joined the Swire group in 1979 and in addition to Hong Kong, he has worked for the group in Japan, the United Kingdom and the United States.
Director Flight Operations
He oversees all aspects of the airline’s global flight operations. He has worked with the Group for more than 22 years, including the past five years in the Flight Operations Department as General Manager Aircrew.
Engineering Director
He joined Cathay Pacific in 1982 and was previously employed by the International Civil Aviation Organisation (ICAO) and British Airways. He is also a Director of Hong Kong Aircraft Engineering Company Limited, Hong Kong Aero Engine Services Limited, and Associated Engineers Limited.
Director Sales and Marketing
He joined Cathay Pacific in 1983 and has since held a variety of posts in the company. These include Country Manager for Malaysia and Brunei, Staff Manager for Outports, Manager for Passenger Product, Vice-President for Canada, and General Manager Cargo.
Director Personnel
He first joined Cathay Pacific in October 1973 as a Cargo Officer, and has held a number of positions within the airline in the areas of cargo, airport services, and personnel.
Director Corporate Development
joined Cathay Pacific in 1982 as a management trainee and has held several positions with the airline, including postings to Malaysia and Japan. He was previously Director Corporate Planning since 2000 and is also a Director of Cathay Pacific Catering Services Hong Kong Limited and Air Hong Kong.
Director Information Management
His responsibilities include overseeing the strategic positioning and delivery of the airline’s information management and technology needs.He has previously held positions as CEO of Tenzing Communications,providers of airline inflight email and SMS services,and CEO of Cathay Pacific’s Catering Division.He has worked with Cathay Pacific since 1975.
Director and General Manager Cargo
joined Cathay Pacific in 1984. He has held a number of managerial positions overseas as well as in marketing and sales and revenue management. He has been involved in loyalty marketing since January 1995, and launched the Asia Miles Travel Reward Programme in 1999.
Director Service Delivery
joined Cathay Pacific in 1998 as Manager Corporate Communication, was appointed General Manager Inflight Services in August 2000. She has been a Director of Cathay Pacific Catering Services Hong Kong Ltd since September 2000.
Non-Executive Directors
Director of the Company
He is also Finance Director of Swire Pacific Limited and a Director of John Swire & Sons (H.K.) Limited and Swire Properties Limited. He joined the Swire group in 1986.
Director of the Company
He was appointed Deputy Chairman in January 1997. He is Managing Director of CITIC Pacific Limited.
Alternate Director to Mr. FAN Hung Ling Henry
He is an executive director of CITIC Pacific Limited
Director of the Company
He is also a Director of Swire Pacific Limited, Hong Kong Aircraft Engineering Company Limited and John Swire & Sons (H.K.) Limited. He joined the Swire group in 1970.
Director of the Company
He is also Chairman of John Swire & Sons Limited and a Director of Swire Pacific Limited and Swire Properties Limited. He joined the Swire group in 1976 and in addition to Hong Kong has worked for the group in Japan, Taiwan and Australia.
Director and Deputy Chairman of the Company
He is the Chairman of the Board and a Non-Executive Director of Air China Limited. He is also President of China National Aviation Holding Company.
Director of the Company
He is Deputy Managing Director of CITIC Pacific Limited.
Director of the Company
He was appointed Director of John Swire & Sons Limited in May 2002. He is also Chairman of P&O Ferries and Southampton Container Terminal
Director of the Company
She is the Vice President and Chairman of the Commercial Committee of Air China.
Independent Non-Executive Directors
Director of the Company
He is Chairman of Hysan Development Company Limited and is also a Director of Hang Seng Bank Limited and SCMP Group Limited.
Director of the Company
He is an Executive Director of The Hong Kong and Shanghai Banking Corporation Limited. He is a Director of Hang Seng Bank Limited and has been a Vice-Chairman and Chief Executive since May 2005.He is Chairman of HSBC Insurance (Asia-Pacific)Holdings Limited, and a Director of Bank of Communications Limited, Esprit Holdings Limited, Hong Kong Interbank Clearing Limited and Hutchison Whampoa Limited.
Director of the Company
He is Deputy Chairman and Group Managing Director of PCCW Limited. He is also a Director of The Hong Kong and Shanghai Banking Corporation Limited.
Director of the Company
He is Chairman of Orient Overseas (International) Limited.
3. Operational Plan
Company mission and objective
The company’s vision is to be the most admired airline in the world. To achieve that hallmark as a service leader, the company is committed to service enhancements that reflect its unique motto, “Service Straight from the Heart.”
- Ensuring safety comes first
- Providing Service Straight From the Heart
- Encouraging product leadership
- Delivering superior financial returns
- Providing rewarding career opportunities
Distribution
Cathay Pacific weekly aircraft departures are estimated to be approximately 1,250 of 102 destinations in 35 countries. The reported passengers carried in 2005 reached to a total of 15,438,243 and cargo carried in 2005 reached to a total of 1,118,047 tonnes.
Products
Cathay Pacific Cargo operates scheduled long-haul freighter services to world-wide destinations that include Paris, Milan, Manchester, Brussels, Dubai, Dehli, Bombay, Sydney, Melbourne, Chicago, Los Angels and New York.
Cathay Pacific Cargo also operate freighter services to Hong Kong-Tokyo-Taipei-Hong Kong six times a week, a direct freighter service to Tokyo and Seoul once a week. A freighter service to Sydney and Melbourne.
Cathay Pacific Cargo arranges extensive trucking services within Europe, North America, Hong Kong, North-east Asia, Africa, Middle East and New Zealand. The services enable your cargo to reach destinations where Cathay Pacific does not fly directly.
The Group’s principal activity is the operation of an international airline. The Group offers scheduled cargo and passenger services to 102 destinations around the world. Other activities include airline catering, aircraft handling and engineering, provision of computerised reservation systems, ground and ramp handling, aircrew and financial services and property investment. Operations of the Group are carried out in Hong Kong, Isle of Man, Canada, the People’s Republic of China and Bermuda.
4. Market Research and Analysis
Target Customer
Cathay Pacific key target customers includes the multi-sector, premium, frequent international traveler.
Competitor and Competitive Edges
Top competitors of Cathay Pacific include British Airways China Airlines, China Southern Airlines and Singapore Airlines.
The main competitive advantage of Cathay Pacific is on their brand strength which is consistently good service and sophistication congruent with the world’s greatest city. It has also ties in with Hong Kong image faultlessly. Cathay Pacific also offers superb services in ground to air.
In addition, Cathay Pacific is dedicated to technological excellence for its products and services. It was one of the first airlines to provide inflight email. It also offers online ticketing and check-in, a downloadable timetable, and the notiFLY flight paging service, which delivers real-time flight information updates to customers via email or on their mobile phones. The iPermit scheme enables Taiwan residents to apply for Hong Kong visas via the internet and collect them upon arrival at Hong Kong International Airport. Its inflight entertainment system offers more than 20 video channels and an audio/video on demand system for First and Business class passengers. It was voted “World’s Leading Use of Inflight Technology” in the World Travel Awards 2003 poll of 80,000 travel industry professionals.
5. Economic of the Business
“Air travel remains a large and growing industry. It facilitates economic growth, world trade, international investment and tourism and is therefore central to the globalization taking place in many other industries.
In the past decade, air travel has grown by 7% per year. Travel for both business and leisure purposes grew strongly worldwide. Scheduled airlines carried 1.5 billion passengers last year. In the leisure market, the availability of large aircraft such as the Boeing 747 made it convenient and affordable for people to travel further to new and exotic destinations. Governments in developing countries realized the benefits of tourism to their national economies and spurred the development of resorts and infrastructure to lure tourists from the prosperous countries in Western Europe and North America. As the economies of developing countries grow, their own citizens are already becoming the new international tourists of the future.
Business travel has also grown as companies become increasingly international in terms of their investments, their supply and production chains and their customers. The rapid growth of world trade in goods and services and international direct investment have also contributed to growth in business travel. Airlines’ profitability is closely tied to economic growth and trade.
Since then, airlines have had to recognize the need for radical change to ensure their survival and prosperity. Many have tried to cut costs aggressively, to reduce capacity growth and to increase load factors. At a time of renewed economic growth, such actions have returned the industry as a whole to profitability.
To meet the requirements of their increasingly discerning customers, some airlines have to invest heavily in the quality of service that they offer, both on the ground and in the air. Ticketless travel, new interactive entertainment systems, and more comfortable seating are just some of the product enhancements being introduced to attract and retain customers.
A number of factors are forcing airlines to become more efficient. The airline industry has proceeded along the path towards globalization and consolidation, characteristics associated with the normal development of many other industries. It has done this through the establishment of alliances and partnerships between airlines, linking their networks to expand access to their customers. Hundreds of airlines have entered into alliances, ranging from marketing agreements and code-shares to franchises and equity transfers.
The outlook for the air travel industry is one of strong growth. Forecasts suggest that the number of passengers will double by 2010. For airlines, the future will hold many challenges. Successful airlines will be those that continue to tackle their costs and improve their products, thereby securing a strong presence in the key world aviation markets.” ()
6. Marketing Plan
Overall Marketing Strategy
Cathay Pacific Airways marketing strategy is focused in terms of market achievements, marketing strategy and positioning, advertising and promotion campaigns, product development, design and package as well as after-sales service, according to a press release from the Cathay Pacific Airways.
Market Segments
Cathay Pacific Airways key target market is the multi-sector, premium, frequent international traveler.
7. Business Expansion – set up plan
The foremost expansion plan of the company is to make the company a wholly owned subsidiary which will create significant value. PArt of their expansion plan is to increase existing stake in Air China.
There is also a plan to further order a number of aircraft for delivery. In addition, additional services will be offered. A freighter service to Chennai and increased our frequency to Atlanta, Dallas, Delhi, Mumbai, Penang and Singapore will be commenced.
8. Future Plan
In the future, the company is planning to build and operate on their own cargo terminal at Hong Kong International Airport with an eventual planned annual capacity of five million tonnes. This will enable the company to pursue aggressive cargo growth plans, make significant cost savings, introduce product innovation and strengthen Hong Kong’s position as a global logistics hub.
9. References
10. Appendix
Appendix A. Product Category and Features
Product Portfolio
Our premium service, offering priority handling and a comprehensive money back guarantee
Our airport-to-airport courier service for delivering small parcels with fast customs clearance
Our high security service for shipments of high value or liable to pilferage
Our professional service for dangerous goods, ensuring the highest safety standards at all stages of a shipment’s movement
Our highly reliable service designed to ensure your shipments always arrive in fresh condition
Our dedicated service providing special care to travelling live animals
Our specialised service providing tailor-made solutions for shipping unusual cargo
Source:
Appendix B. Balance Sheet
Source:
Appendix C. Profit & Loss Account Forecast
Source:
Appendix D. Cash Flow
Quarterly Cash Flow Statement
In Millions of HKD
(except for per share items)
2nd Qtr.
06/30/06
4th Qtr.
12/31/05
2nd Qtr.
06/30/05
4th Qtr.
12/31/04
Reclassified
12/31/05
2nd Qtr.
06/30/04
Non-Cash Items
78
170
135
122
101
Cash Taxes Pd, Supplemental
345
971
211
785
172
Cash Interest Pd, Suppl
446
671
316
786
435
Changes in Working Capital
4,070
7,227
3,424
9,083
4,268
Total Cash from Operations
4,148
7,397
3,559
9,205
4,369
Capital Expenditures
(1,644)
(4,354)
(2,819)
(4,064)
(2,340)
Sale of Fixed Assets
5
21
9
54
–
Sale/Maturity of Investment
–
117
–
0
–
Investment, Net
(503)
(120)
447
884
274
Other Investing Cash Flow
41
(124)
(95)
(2,623)
95
Other Investment Cash Flow Items, Total
(457)
(106)
361
(1,685)
369
Total Cash from Investing
(2,101)
(4,460)
(2,458)
(5,749)
(1,971)
Financing Cash Flow Items
(15)
231
(12)
(112)
30
Total Cash Dividends Paid
(947)
(2,196)
(1,520)
(2,189)
(1,515)
Issuance (Retirement) of Stock, Net
17
78
68
199
183
Long Term Debt Issued
929
5,486
2,859
1,746
79
Long Term Debt Reduction
(2,489)
(4,807)
(1,733)
(6,247)
(4,742)
Iss (Retirmnt) of Debt, Net
(1,560)
679
1,126
(4,501)
(4,663)
Total Cash From Financing
(2,505)
(1,208)
(338)
(6,603)
(5,965)
Foreign Exchange Effects
37
(119)
(88)
155
(61)
Net Change in Cash
(421)
1,610
675
(2,992)
(3,628)
Net Cash – Begin Balance/Rsvd for Future Use
4,267
2,657
2,657
5,649
5,649
Net Cash – End Balance/Rsrv for Future Use
3,846
4,267
3,332
2,657
2,021
Cash Interest Pd, Suppl
446
671
316
786
435
Cash Taxes Pd, Supplemental
345
971
211
785
172
Source:
Credit:ivythesis.typepad.com
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