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The Five Forces Model ——Cathay Pacific Airways Limited, Cathay…

- - - - International
        In terms of international passenger transport,there are few ways that can be as time-sensitive as air transport,and there is little threat of substitution.
      - Domestic
        China now has a well-developed road and railway system,which will pose a certain alternative threat to air transport. But since Cathay only operates domestic flights to Beijing,Shanghai,Hongkong and Taipei. So,the threat is not particularly urgent.
        
        MIS solution
        Using AI, 5G, biometric identificaiton technology, service robots and other cutting-edge technologies to simplify processes, facilitate travel and improve service levels, such as self-service baggage chck service, self-boarding, on-board wireless Internet access and other innovative services.
        What's more, using in-flight customer maintenance system and the company's customer service system database current-time docking and exchange to achieve a deeper interaction and communication with customers, as well as know more about the needs of customers, even during the outbreak of COVID-19 to provide protection. Through the above measures,Cathay can improve and enhance customer travel experience and customer satisfaction, as well as attain product and service differentiation.
    - - International
        International freight routes will have the threat of alternative by sea transport, which carries huge volumes and costs less than air transport, but is far less rapid and not suitable for carrying high-value goods.
        Therefore, when transporting goods of high value and high aging requirements, international freight routes are still difficult to be replaced.
        
        MIS solution
        Actively use the electronic information tracking system and query system of goods, and enhance the function of e-commerce of goods to inprove the quality of service and reduce the probability of loss or damage of goods, so as to achieve the commitment to service. To avoid market erosion of alternatives such as railways and sea transport by improving the quality of express and quasi-express transport services.
      - Domestic
        Road and rail transport are cheaper and more volume. And with the continuous development of technology,their transport speed is also increasing,especially the rail transport.
        So the threat of alternatives from road and rail transport are growing for Cathay Pacific's domestic cargo routes.
- - - - Current situation : ——Airlines' biggest expense is fuel, which typically accounts for about 30% of operating costsThe aviation fuel mostly rely on the supply of the airport and the price can refer to the market which stays dynamic and unpredictable。in the 2016 fiscal year, Cathay Pacific admitted in its financial report that it recorded a loss of 8.456 billion Hong Kong dollars in fuel derivatives investment which originally aims to reduce the risk of oil price by hedging a certain percentage of the estimated fuel consumption. As a result, the drop in global oil prices in the past year allowed Cathay Pacific to save 20.4% of its fuel expenses, but it lost 43.4% of the loss due to this hedging failure.
      - Coping strategy: To avoid too much dependence of the fuel supplier,Thursday, August 7, 2014 CTHAI Airways announced that it has invested in Fulcrum BioEnergy, Inc. (" Fulcrum "), a US-BASED sustainable biofuels developer, as its first airline investor.The investment is part of Cathay's biofuels strategy to achieve cost savings and carbon-neutral growth
    - - Current situation: Airline meals account for about 3%-3.5% of operating costs.
      - Coping strategy: The Forward integration strategy was adopted in 1967 to establish Cathay Pacific Catering Service (Hong Kong) Co., Ltd. (English: Cathay P acific Catering Service Limited, referred to as CPCS). Customers in the airline provide in-flight meals and deliver food, beverages and all kinds of groceries to the passenger plane’s logistics services. Cathay Pacific is a wholly-owned in-flight food supplier.
        
        IT used in reducing the supplier's bargaining power *
        
        Cathay Pacific airways has worked with Red Hat an American IBM subsidiary software company that provides open source software products to enterprises，
        to design and implement a modern hybrid cloud IT architecture platform and operation model. This new architecture provides scalability and portability on demand, leading to more efficient and cost-effective workflows. Through these changes, Cathay Pacific is better able to respond to customer and business needs choosing an open source solution prevents vendor lock-in, reduces dependency on hosting service providers, and better controls costs
        
        Cathay Pacific uses SAP S/4HANA technology to streamline finance and procurement functions.Replacing antiquated systems with advanced technology that will give Cathay a clearer picture of its operating costs, support strategic procurement and modernise its current finance and procurement functions.It can improve the negotiation ability with suppliers and provide comprehensive business analysis and basis for decision-making.
    - - Current situation: Like any other Airway company, Cathay Pacific Airways Limited's planes are supplied by either Boeing Company or Airbus SE which cornered the market , because of the barrier entry of high tech and patents, airway companies almost got no chances to adapt the forward integration strategy.
      - Coping strategy: Due to the current situation listed above, the Cathay Pacific Airways Limited's supplier's bargaining power is enormous. Negotiation, changing supplier or forward integration are necessary.
- - - - Cathay Pacific has three big shareholders: Swire Pacific, Air China and Qatar Airways. But it is still owned by an airline based in Hong Kong, China, so it is controlled by the Civil Aviation Administration. The air transport industry belongs to the industry that the government permits to operate and manage. According to relevant regulations, if a domestic company wants to establish an investment civil aviation enterprise, it should apply to CAAC or CAAC regional Administration for corresponding permission. In order to implement strict management on the business license of public air transport enterprises, the relevant regulations issued by the former CAAC in 2007 explicitly stated that the CAAC would suspend accepting applications for the establishment of new airlines until 2010. In 2010, the Civil Aviation Administration of China issued the Notice on Further Strengthening the Management of Business License of Public Air Transport Enterprises and Implementing the Requirements of Air Transport Safety, which will continue to suspend the application for the establishment of new airlines. In September 2016, Civil Aviation Administration of China issued the Notice on Strengthening market Access Management of Newly established Airlines to strengthen market access management of newly established airlines. In addition to strictly controlling newly established airlines, it also stipulated stricter restrictions on transferring regional airlines to trunk lines and transferring all cargo airlines to passenger transport. The government's high regulation of the air transport industry constitutes the qualification barrier to enter the air transport market.
    - - Air transport is a capital intensive industry. In addition to a large amount of capital expenditure for the purchase or lease of aircraft, airlines also need to invest a large amount of operating funds to maintain daily operations, such as paying fuel costs, aircraft takeoff and landing fees and aircraft maintenance fees. An airline needs to reach a certain scale in the number of aircraft, routes, coverage, etc., before it can achieve profits, which puts forward higher capital requirements for the entrants of the industry and constitutes a capital barrier for the air transport industry.
    - - Fleet size, airline network and marketing network layout are the scale barriers to enter the aviation market. Like other capital-intensive, advanced technology industries with economies of scale characteristics, civil aviation economy of scale is also very obvious. Reasonable fleet size, marketing network and route network to reduce long-term average cost is the key factor to control unit cost in the operation of civil aviation enterprises.
    - - Air transport is a technology - intensive industry. The successful operation of an airline company requires experienced senior management personnel and skilled aviation professionals. Many professional personnel need a long time of training and a lot of practical operation, and need to obtain the corresponding professional and technical qualification certificate before taking up the post.Pilots are an important resource for airlines. In order to ensure the stability and safety of the civil aviation flight team, according to the normative documents issued by the Civil Aviation Administration, the aviation flight personnel recruited by aviation enterprises have very high professional requirements and assessment requirements, and the salary and other expenses required to pay are also a considerable cost.The high technical requirements for aviation professionals, the relative shortage of professional flight personnel and the strict management of flow constitute the technical and talent barriers to enter the air transport market.
        
        Of course, it is not out of the question for freight companies or express delivery companies to create their own routes, but in general, because of the high barriers to entry in China's domestic aviation industry, there are few potential competitors.
- - - - The rapid growth in direct flights to China's commercial hubs such as Air China and China Southern Airlines has eroded the once-lucrative status of Cathay Pacific as the main transit route to and from the mainland
        
        Coping Strategy
        1.Different ticket discounts are formulated for self-service ticket purchase on websites, mobile APP ticket purchase, telephone ticket purchase, third-party cooperation ticket purchase and other channels, so as to expand sales and reduce labor costs
        2.Cathay Pacific Airways make different fares and discounts for different destinations, connections, transit places and round-trip tickets, and adopt different pricing strategies according to the degree of market competition and regional advantages of products..
      - With the direct flights across the Taiwan Straits, Hong Kong has gradually lost its regional advantage, and Cathay Pacific has also lost its huge cross-Straits transit passenger source market
    - - On the other hand, Cathay Pacific Airways's top competitors include Korean Air Lines, Republic Airways, Singapore Airlines, SkyWest, International Consolidated Airlines， Emirates and Etihad Airways.Some of them have higher market share, profitability and net income than Cathay Pacific Airways
        
        Coping Strategy
        1.Customer segmentation pricing: the aviation market is a multi-level market.Due to the different identities and travel purposes of passengers, various passengers have different affordability of ticket prices, which can be subdivided into different grades.Generally, the passenger market can be divided into four categories. The first category is time-sensitive but price-insensitive passengers.The second category: passengers sensitive to time and price;The third category: price-sensitive but time-insensitive travelers;Category 4: passengers who are not sensitive to time price.According to the level of passengers' needs, airlines divide the seats of flights into certain categories and set different prices.
        2.Develop international airline network, constantly open new airline, purchase Airbus mainframe into new airline, have opened North America, Australia "Kangaroo", Eurasian Middle East and other routes, destinations continue to expand, covering many countries and regions.
      - On the other hand, Cathay Pacific Airways's top competitors include Korean Air Lines, Republic Airways, Singapore Airlines, SkyWest, International Consolidated Airlines， Emirates and Etihad Airways.Some of them have higher market share, profitability and net income than Cathay Pacific Airways
        
        Coping Strategy
        Image pricing: In the face of fierce competition from low-cost airlines, In order to maintain the brand image of Cathay Pacific, Cathay Pacific still adheres to the brand positioning of "creating quality value for customers", provides safe, reliable, comfortable, convenient and tastefully service, and insists on high pricing level.
- - - - The cost and effort required to switch from one carrier to another is low.
        With the third-party trip-booking websites and smartphone apps, most travelers do not contact an airline, directly to book a flight. They access sites or apps that compare prices of all airlines, and choose the best one.
        
        MIS solution
        Cathay Pacific can create an exclusive app, cooperate with relevant tourism service platforms, and jointly build a set of data-based system to obtain users' real-time or near real-time data, analyze needs through big data, adopt different price gradients on key routes to meet users' diversified needs, and provide ticket reservation, unsubscribe and extension services. Cooperate with the airport, especially in the context of the global epidemic, launch independent health codes, travel codes, vaccination codes, etc. In the app, complete online check-in through the app, simplify the check-in process, eliminate the link of queuing and check-in, and improve the peer efficiency of the airport, so as to improve the user experience and enhance user stickiness. In addition, online retail stores are set up in the app to cooperate with mainstream mobile payment platforms in various countries to provide personalized services to passengers. In order to achieve the goal of improving user loyalty, form differentiated competitive advantages with other competitors, and deal with the threat of strong bargaining power of buyers.
      - The buyers are able to integrate.
        For example, if the customers will come together and ask for lower traveling prices, the companies will have no choice but to grant them due to pressure.
      - Product is not very differentiated.
        The law is tilted in the favor of the passengers and their safety and convenience are important concerns for the aviation brands. To acquiring customers to building customer loyalty, Airlines have to focus a lot on creating a great customer experience and managing prices. Customers have several options, as there are several players in the industry which provide matching experiences. If they go to China directly, they can choose Air China not through Hong Kong.
    - - In terms of freight business, there are many types of transportation service becoming its substitutes, such as road, rail and sea transport. For the international transport, if the customer’s order is large and doesn’t need to be completed in a short time, they will prefer sea transportation to air transportation.