SMP2Team#414 - Industry Environment Although Cathay Pacific...

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Industry Environment Although Cathay Pacific operates a highly successful cargo operation (revenues in excess of HK$25B in 2010), its primary industry is in passenger travel (nearly HK$60B in revenue in 2010). They have distinguished themselves as one of the most luxurious carriers in the commercial airline transportation industry. Cathay Pacific has announced a new Premium Economy class for extended flights. Luxury, as well as a strong presence in the Asian emerging markets, has contributed significantly to Cathay Pacific’s success. Aside from the results posted in 2008, Cathay Pacific has maintained profits above the industry average for the past ten years (see graphic below). In fact, Cathay Pacific has reported losses in only two years out of over 65 years of operation. A business is said to have a competitive advantage if their profits are above the average of the industry, and a business would have a sustained competitive advantage if they keep their profits above the industry average for consecutive multiple years. For this reason, and excluding 2008 as an outlier (Cathay Pacific suffered from poor fuel hedging practices that year), Cathay Pacific has both a competitive advantage and a sustained competitive advantage. *Industry Average was calculated based on 13 similar US Carriers 1 Cathay Pacific is at a disadvantage compared to low-cost airlines, as they are unable to match those carriers’ low-prices with their current business model. Buying, renovating and maintaining airplanes loaded with features adds additional expenses for Cathay Pacific. They currently operate six aircraft types, which increases their operating expenses. By 2016, they plan to reduce this number to four. Cathay Pacific has accrued significant customer loyalty from their high level of service. Their customer loyalty program, the Marco Polo Club, is reputed to be one of the World’s Best. While the impact of the program is perhaps immeasurable, it is a well-known fact that these types of loyalty programs, which provide free upgrades and other services, are very addictive to 1 http :// www . transtats . bts . gov / Data _ Elements . aspx ? Data =7
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consumers. The Marco Polo Club, as well as Cathay Pacific’s membership in OneWorld Alliance, are ways with which the company has created value. Many corporations and private companies are gravitating away from owning their own private
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This note was uploaded on 03/07/2012 for the course MAN 6637 taught by Professor Kraft during the Spring '12 term at University of Florida.

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SMP2Team#414 - Industry Environment Although Cathay Pacific...

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