COMPANY PROFILE -Cathay Pacific
Business Sector :Aviation
Operating Geography :Asia, Hong Kong, Global
About Cathay Pacific :Cathay Pacific is an international airline registered and based in Hong Kong, offering scheduled passenger and cargo services to 180 destinations in 44 countries and territories. The company provides scheduled air passenger, cargo services, airline catering, ramp and passenger handling, ground-handling, cargo and aircraft maintenance services. Dragonair is a regional airline registered and a wholly owned subsidiary of Cathay Pacific. Total number of employees working in the company are 33,800 (Oct 2016, incl. subsidiaries).
Cathay Pacific Revenue :
US$M 12,472 – FY ending 31st Dec 2017 (y-o-y growth 4.9%)
US$M 11,891 – FY ending 31st Dec 2016
Ownership / Major shareholders :
As of April 2018, the major shareholders of the company are as follows –
1) Swire Pacific Ltd. (45.0%)
2) Air China Ltd. (30.0%)
3) Government of Qatar (Qatar Airways) (9.94%)
4) Norges Bank Investment Management (0.43%)
5) Dimensional Fund Advisors LP (0.38%)
Competitive Analysis of Cathay Pacific
|1. Strong brand equity and customer experience|
2. Presence across regions leading to increased synergies of operations
3. Huge fleet and mix of aircrafts leading to optimum utilization of fleet based on demand conditions
4. Code sharing agreements along with membership in OneWorld alliance
|1. Weak financials due to high leverage
2. Future finance leases liabilities leading to limited scope for future expansion
3. Cost reduction initiatives leading to unpleasant measures
|1. Emerging market growth potential which would be the future growth driver for the company |
2. Technology backed services leading to improved operations and reduced costs
3. Expansion in air freight sector in cargo hubs like Dubai
|1. Intense competition in both domestic and international segments
2. Volatility in jet fuel prices which is significant operating expense for the company
3. Regulatory issues pertaining to continuing operations in both domestic and international segments
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Detailed SWOT Analysis of Cathay Pacific
1. Weak financials due to high leverage: Cathay Pacific posted first-half loss of HK$2.1 billion (US$269 million) in H1-FY17, its worst performance last two decades. It is seen from the financial reports that the company has low liquidity ratios. The weak ratio implies that the firm may face issues in fulfilling its short-term obligations. Also, the D/E ratio for Cathay Pacific is 1.04 compared to 0.76 for ANA (All Nippon Airways) proving that the company has raised more debt and it’s a highly-leveraged company. If we see the Cash Conversion cycle of Cathay airlines it shows that the firm is financing working capital requirement through supplier financing which would result in higher cost of borrowing for the firm based on the cost of capital of the suppliers. The company’s tight liquidity position puts it in a disadvantage when funding any new capital from the market due to increased risk perceived by the creditors.
1. Intense competition in both regional and international segments: The airline industry is a highly competitive one. The competitive factors are based on fares and services offered along with it. Profits of airlines are sensitive to even small changes in fares and demand conditions. Cathay Pacific's competitors include mainland Chinese and Middle Eastern airlines which are expanding aggressively over the last few years. Its low-cost subsidiary Cathay Dragon which mainly operates in the regional markets also faces significant competition from players like Air Asia and Tiger Air.
2. Volatility in jet fuel prices which is significant operating expense for the company: Fuel consists of the largest operating cost for the company consisting of approximately 34% of the total operating costs. The fluctuation of such an important factor in the operating cost is caused due to external factors which are out of the control of the company. The risk of volatility can be reduced by hedging the price risk. But, the amount of hedging is limited and nevertheless have material impact on the operating cost for the company thereby affecting margins and ultimately the profitability of the company. Further the group incurred significant fuel hedging costs to the tune of HK $M 8,456 in FY16 which decreased the overall benefit of decrease in fuel prices.
Major Competitors :
Major Brands :
- Cathay Pacific
- Cathay Dragon
- Cathay Pacific Catering Services (HK) Limited
- Cathay Pacific Services Limited
- Cathay Holidays Limited
Key Business Segments / Diversification :
Recent Acquisition / Mergers / Alliance / Joint Ventures / Divestitures :
|Dragonair||Airlines||2006||Acquisition||DragonAir was acquired for $1.05 million and with this deal Cathay Pacific would increase its flight network on the Chinese Mainland. From the two routes that it was previously operating on, Cathay Pacific would now be able to operate on all of the 23 routes under Dragonair.|
USD 12.53 Great quality, Affordable pricing.
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Cathay Pacific SWOT and PESTLE analysis has been conducted by Vipul Varkar and senior analysts from Barakaat Consulting.
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