Cathay Pacific's Competitive Advantage & Strategy
Cathay Pacific Airways, first founded in 1946 by ex-air force pilots Roy Farrell and Sydney de Kantzow, has grown rapidly in the past few decades to become one of the world's largest airlines and the international flag carrier of Hong Kong. According to data released by Cathay Pacific, the airline was ranked the 8th most profitable airline in terms of net profit in 2012, serving more than 170 destinations in 42 countries worldwide. This article explores the factors that contributed to Cathay Pacific's competitive advantage and strategy that stood superior against many of its rivals in the airline industry.
Dragonair & China
One of the most important factors that has contributed to Cathay Pacific's growth and success is its entry into China. China is one of the world's most lucrative market with a population of more than 1.3 billion and surged past Japan as the number 2 economy in the world. The country is an important and attractive market for Cathay Pacific and many other airlines worldwide. Gaining entry and establishing a stronger foothold in China would prove to be very invaluable.
Before taking over Dragonair as its subsidiary and sister airline, Cathay Pacific only had 2 routes into mainland China. The takeover provided Cathay Pacific with the competitive advantage of its extensive network, adding on more than 23 passenger routes into China. In 2012, Dragonair was ranked the largest foreign carrier in China.
Since its incorporation, Cathay Pacific is no stranger to forming strategic alliances. It founded the Oneworld alliance, which has grown to one of the largest airline alliances today. Cathay Pacific also established codeshare agreements with multiple airlines that allows partners to co-share flights (i.e. same flight number). Codeshare agreements provide advantages such as cost reductions and the indirect boost of consumers' confidence.
Strategic alliances or joint ventures provide a plethora of advantages for partners, such as opening up opportunities in a different market, improving brand awareness and easier access to a new customer-base. For example, in 2010, Cathay Pacific entered a joint venture with Air China, forming the new airline, Air Cargo China. The joint venture allowed Cathay Pacific to expand its cargo business rapidly and tap into Air China's already well-established network in China.
Cathay Pacific takes pride in its "Heart of Asia" global image and firmly establishes its status as a premium carrier. Despite facing intense competition from low-cost carriers (LCCs) such as Jetstar Hong Kong, Cathay Pacific has been seeking to differentiate itself instead of competing head-on. For example, the airline implemented revenue management which was very successful on their premium economy flights. It was achieved by reforming fares, introducing “fanfares” promotions and different tiers of fares.
Cathay Pacific adopts the "Think globally, act locally" strategy when developing and marketing its brand image. Broderick (2013) describes this business strategy as maintaining a global image while adapting to the local market. For example, Cathay Pacific adapts to the local Chinese market by introducing cheaper flights through its subsidiary Dragonair.
Cathay Pacific is a proud owner of 135 modernized aircraft and ranked one of the world's youngest fleets. Despite the young age of less than 10 years, the airline is still seeking continual renewal of its aircraft fleet. It currently has more than 80 upcoming to be delivered by the end of the decade. According to NYC Aviation, Cathay Pacific is the first airline in Asia to place an order for the new Boeing 777X series, in a deal worth more than $7 billion.
A well-equipped and modern fleet would mean better safety, technology and efficiency. This can lead to cost-savings due to reduced fuel consumption, an increase in the number of passenger seats, a boost in passengers' confidence and a host of other benefits.
Advertising plays a major role in the global marketing of products and services. Today, advertising has revolutionized and has a different meaning for airlines and many other businesses. It is important to make use of the Internet and its social media platforms to gain that competitive advantage. Cathay Pacific Airways focused on building its global brand image as the "Heart of Asia" through extensive advertising beyond traditional platforms. For instance, videos of a flight attendant's daily life were uploaded to YouTube to convey the professionalism of their crew. The airline also targeted business executives with LinkedIn and launched online campaigns on Facebook.
How COVID-19 has affected Cathay Pacific
Like most airlines throughout the entire world, Cathay is faced with an unimprecented challenge in 2020 during the Coranavirus (Covid-19) outbreak. Cathay has deemed it as the biggest challenge ever encountered with traffic down almost 100% at the peak of the pandemic. Hundreds of planes were grounded and according to Asian Aviation, Cathay made a loss of HKD $4.5 billion in the first 4 months of 2020 alone. Prior to the pandemic, Cathay was already facing decreased air travel due to the anti-government protests.
It is expected that the impact will last for years beyond 2020 with structural changes required to edge out its competitors with decreased globalization. However, Cathay Airlines, as the flagship carrier of Hong Kong, will expect to receive generous help from the government. This strong competitive advantage as a flagship carrier has seen the Executive Council pledge a massive HK$39 billion bailout to save the city's aviation industry. The recapitalization plan will see the government taking a 6.08% stake in the company with other shareholders such as Swire Pacific, Air China and Qatar Airways.
The long term solution would still be the eventual possibility of air travel returning to normal levels pre Covid-19, it's 70+ years of strong branding in the airline industry and Hong Kong's massive traffic due to its aviation hub status.
CAPA. Centre For Aviation. Available at: http://centreforaviation.com/
Broderick, A. Available at: http://www.imsmarketing.ie/news/think-global-act-local
NYC Aviation. Available at: http://www.nycaviation.com/2013/12/cathay-pacific-becomes-first-asian-airline-order-777-9x/#.UvH_fvmSxJc
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This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2014 Geronimo Colt