COMPANY PROFILE

Cathay Pacific Airways

Limited

REFERENCE CODE: C00F1CDB-4C6F-4BA5-997B-A82D60E1071C

PUBLICATION DATE: 17 Aug 2012
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Cathay Pacific Airways Limited

TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................3
Key Facts...............................................................................................................3
SWOT Analysis.....................................................................................................4

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Cathay Pacific Airways Limited

Company Overview

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 167 destinations in 42 countries and
territories. It is headquartered in Lantau, Hong Kong and employed approximately 29,000 people
as on December 31, 2011.
The company recorded revenues of HK$98,406 million ($12,684.5 million) during the financial year
ended December 2011 (FY2011), an increase of 9.9% over FY2010. The operating profit of the
company was HK$5,500 million ($709 million) during FY2011, a decrease of 50.2% compared to
FY2010. The net profit was HK$5,501 million ($709.1 million) in FY2011, a decrease of 60.8%
compared to FY2010.

KEY FACTS
Head Office

Cathay Pacific Airways Limited

Cathay Pacific City
8 Scenic Road
Hong Kong International Airport
Lantau
HKG

Phone

852 2747 5210

Fax

852 2810 6563

Web Address

http://www.cathaypacific.com

Revenue / turnover 98,406.0

(HKD Mn)
Financial Year End

December

Employees

29,000

Hong Kong Ticker

00293

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Cathay Pacific Airways Limited

SWOT Analysis

SWOT ANALYSIS
Cathay Pacific Airways (Cathay Pacific) is a Hong Kong-based international airline, offering scheduled
passenger and cargo services. It has a wide-spread operational network which enables it to gain
access to key markets as well as expand its customer base. However, natural calamities could have
an adverse impact on the company's operations resulting in strain in its financial condition and cash
flows.
Strengths

Weaknesses

Wide-spread operational network and strong

fleet operations
Robust market position
Geographical diversified operations

Antitrust investigations and proceedings

hamper the reputation
Obligations under finance leases

Opportunities

Threats

Growing global tourism industry

Positive outlook of Asia-Pacific airlines
industry

Risk relating to natural calamities

Volatility in jet fuel prices
Intense competition and price discounting

Strengths

Wide-spread operational network and strong fleet operations

Cathay Pacific has a wide-spread operational network. The company offers scheduled passenger
and cargo services to 167 destinations in 42 countries and territories. During FY2011, Cathay Pacific
increased its flight services to a number of destinations in Japan, Canada, Brazil and the US through
code-share arrangements. Moreover, Cathay Pacific is the parent company of Hong Kong Dragon
Airlines Limited (Dragonair), which offers scheduled passenger and cargo services to 33 destinations
in Mainland China and elsewhere in Asia. Additionally, Cathay Pacific is a founding member of the
oneworld global alliance, whose combined network serves more than 750 destinations worldwide.
Furthermore, the company has a strong fleet base to complement its robust route network. As of
December 31, 2011, the company operated a fleet of 175 aircraft, of which 32 belonged to Dragonair,
11 of AHK and the remaining 132 aircrafts were of Cathay Pacific. In 2011, the company took delivery
of 13 new aircraft, including three Airbus A330-300s, six Boeing 777-300ERs and four Boeing 747-8F
freighters. Moreover, at the end of 2011 there were 93 new aircraft in total on order, for delivery up
to 2019.

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Hence, Cathay Pacifics robust operational network enables it to gain access to key markets as well
as expand its customer base. Also, the strong fleet operations allow the company to improve its
returns by effective utilization of its asset base.
Robust market position
The company has a strong market position in the aviation industry. According to the Air Transport
World's World Airline Report published in 2011, Cathay Pacific was the second most profitable airline
worldwide (in terms of net profit) and the seventh largest airline (in terms of operating profit). In
addition, it was also the tenth largest airline in terms of revenue passenger kilometers (RPKs) and
fourth largest in freight tonne kilometers (FTKs). Moreover, Hong Kong Airport Services (HAS), a
wholly owned subsidiary of Cathay Pacific and an integrated ground handling operator in Hong Kong,
had 49% and 24% market shares in 2011 in ramp and passenger handling businesses, respectively
at Hong Kong International Airport.
Therefore, robust market position ensures Cathay Pacifics status as one of the strongest players
in the airline market, which in turn enhance the brand image and allows the company to charge
premium prices.
Geographical diversified operations
Cathay Pacific has geographically diversified operations. The company has balanced revenue mix
in terms of revenue generated from various geographical locations. For instance, in FY2011, the
company generated revenues from seven geographies including Hong Kong and Mainland China,
Cathay Pacific's largest geographical market, Japan, Korea and Taiwan, North America, Southwest
Pacific and South Africa, Southeast Asia, and India, Middle East, Pakistan and Sri Lanka.
Geographically-diversified operations enable Cathay Pacific to take advantage of a range of market
opportunities while avoiding overexposure to any one market.

Weaknesses

Antitrust investigations and proceedings hamper the reputation

Cathay Pacific is defendant in several antitrust investigations and proceedings in various jurisdictions.
For instance, in 2010, the European Commission imposed a fine equivalent to HK$618 million ($79.7
million) on Cathay Pacific. The Commission issued a decision finding that Cathay Pacific and a
number of other international air cargo carriers agreed on cargo surcharge levels and that such
agreements infringed European competition law. During the same year, the Korean Fair Trade
Commission (KFTC) fined several airlines, including Cathay Pacific, for infringement of European
competition law. In this context, KFTC fined Cathay Pacific with HK$36 million ($4.6 million).

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SWOT Analysis

Therefore, such investigations and fines increase the operating costs of the company which in turn
influences its profitability. Additionally, such proceedings also negatively impact Cathay Pacific's
brand image and reputation in the market.
Obligations under finance leases
Cathay Pacific has commitments under finance lease agreements in respect of aircraft and related
equipment expiring during the years 2012 to 2023. As of December 2011, the company has a future
payment of HK$33,677 million ($4,341 million) and present value of future payments of HK$30,323
million ($3,908.6 million). Cathay Pacific's high level of finance obligations could impact its ability to
obtain additional financing to support its expansion plans. In addition, it could also lead to the diversion
of its cash flows from operations to service the finance obligations.

Opportunities

Growing global tourism industry

The tourism industry worldwide has witnessed a strong recovery since its downfall due to recession
in 2008-09. The recovery was primarily boosted by improved economic conditions worldwide.
According to the World Tourism Organization (UNWTO), following the recovery in 2010, international
tourism grew by about 5% in the first half of 2011. Between January and June of 2011, the total
number of arrivals reached 440 million, 19 million more than in the same period of 2010. Tourism
in advanced economies increased by 4.3%, reducing the gap with emerging economies (4.8%),
which have been driving international tourism growth in recent years. Europe witnessed a 6% increase
in tourist arrivals. International tourist arrivals into Northern Europe increased by 7%, and Central
and Eastern Europe by 9%, and travel to destinations in Southern and Mediterranean Europe
increased by 7%.
Furthermore, according to International Air Transport Association (IATA), by 2014 there will be 3.3
billion air travelers. China is expected to be the biggest contributor of new travelers. Of the 800
million new travelers expected in 2014, 360 million will travel on Asia Pacific routes and of those
214 million will be associated with China (181 million domestic and 33 million international). The US
will remain the largest single country market for domestic passengers (671 million) and international
passengers (215 million).
Thus, a growing end market auger well for Cathay Pacific as it is well positioned to capitalize on the
growing global tourism industry.
Positive outlook of Asia-Pacific airlines industry
The Asia-Pacific airlines industry suffered a decline in 2011 after experiencing a moderate growth
during 2010. However, the industry is predicted to experience strong growth from 2012 towards the
end of the forecast period (2015). According to MarketLine (a unit of Informa Plc), the Asia-Pacific

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SWOT Analysis

airlines industry reached a value of $363 billion in 2011. In 2015, the Asia-Pacific airlines industry
is forecast to have a value of $554.5 billion, an increase of 52.8% since 2011. 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.

Threats

Risk relating to natural calamities

The results of operations of Cathay Pacific are threatened due to natural disasters, such as cyclones,
volcanic eruptions, among others. Natural disasters and political instability cut travel demand to
some of the company's major destinations. For instance, in August 2012, Cathay Pacific suspended
all its Taipei flight operations due to expected severe impact of Typhoon Saola on Taipei. Similarly
in July 2012, Cathay Pacifics flight operation faced disruption due to strong and gusty crosswind
conditions at Hong Kong International Airport.
In addition, air cargo shipments through Hong Kong were also hit by the devastating earthquake
and tsunami that struck Japan in March 2011. The tsunami destroyed a swath of factories producing
auto and high-tech components in northern Japan, disrupting manufacturers that relied on shipping
those parts through the city for use in China. Furthermore, in 2010, the Eyjafjallajokull volcano in
Iceland erupted and emitted ash to heights in excess of 9 km (30,000 ft) causing significant disruption
to European air travel. Due to this, the aviation industry lost $1.8 billion revenues and more than 10
million passengers were stranded in various airports worldwide. In addition, cargo trade was also
severely hit.
Hence, frequent occurrence of such natural calamities could have an adverse impact on the company's
operations resulting in strain in its financial condition and cash flows.
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 like Cathay Pacific. Fuel prices
and its availability are subject to wide price fluctuations based on geopolitical issues and supply and
demand, which can neither be controlled nor accurately predicted. For instance, in December 2011,
the jet fuel price was recorded at $124.2 per barrel, as compared to $112.9 per barrel in January
2011. Furthermore, the political turmoil in the Middle East has raised the oil prices. As the jet fuel
prices account for a major portion of the operational expenses, the situation would result in a reversal
of fortune for global airlines.
Fuel is the biggest single cost for Cathay Pacific and the persistently high jet fuel prices had a
significant effect its operating results in 2011. During the year, the companys profit fell by 61% and

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SWOT Analysis

one of the key reasons for the same was attributed to high jet fuel prices. Hence, a drastic change
in the prices of the fuel can have a serious impact on Cathay Pacific's expenses which may in turn
distresses 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.

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