Cathay Pacific Airways - China or the World - Essay Example

Cathay Pacific Airways: China or the WorldCathay Pacific Airways is a leading airline of Hong Kong and is one of Asia’s most prestigious airlines. It was founded on 24 September 1946, operating passenger flights to Manila, Bangkok, Singapore, and Shanghai. Expansion occurred in 1948 when Hong Kong’s leading company Swire Pacific Group acquired 45% share in it. Cathay Pacific Airways present stakeholders include Beijing based-CITIC Pacific, holding 17.5 per cent stake, Air China with 10 per cent and China National Aviation Co holding 7.

5 per cent, topped by 40 percent stake of Hong Kong Empire of Swire Pacific Group. Currently, Cathay Pacific Airlines is providing services over 90 destinations, carrying 15 million passengers each year. After the acquisition of 100 per cent holding in Dragonair, the Hong Kong based carrier – the biggest airlines serving the mainland China, outside the mainland, Cathay will bring Dragonair also in the fold of oneworld alliance on meeting the delivery conditions and support of other alliance members.

It is a founder member of oneworld alliance of ten member airlines. The alliance has a combined network of 700 destinations. Cathay Pacific also code-shares with oneworld partners -- American Airlines, British Airways, Iberia and Qantas. The question before Cathay Pacific is to either opt for strategic alliances that can develop the mainland market or instead of concentrating on mainland market it should serve global market. After entering into a conditional agreement on 8 June 2006 of Cathay Pacific with Air China, CNAC Limited, CITIC Pacific and SPAC, parties have agreed to restructuring holdings in Cathay and Dragonair and Cathay acquisition of additional shares in Air China.

According to the agreement becoming unconditional, Dragonair will become fully owned subsidiary of Cathay, Air China will become a major shareholder of Cathay, and Cathay will increase its holding in Air China. Reasons for the transaction were that Dragonair was not performing well and was not availing the benefits of economies of scale. This investment in one another’s holdings will help in findings means to improve service, offering, network and growth of Chinese aviation industry. The international connectivity of Cathay and mainly, Hong Kong-China network of Dragonair will not only benefit both airlines, it will better Cathay’s network reach, linking it to China and connecting China to the rest of the world.

This transaction will further help in developing Beijing Capital International Airport and Hong Kong International Airport, turning into gateways and hub for mainland China and aviation industry of both Hong Kong and China.It is important to note that Cathay’s synergies from the Dragonair merger have been one of the reasons of its passenger traffic growth and increased cargo business. It is estimated that cross shareholdings of Cathay and Air China will increase revenue through cost synergies accruing from economies of scale and optimization of resources.

Together, Air China and Cathay with 100 per cent owning of Dragonair, will deliver more destinations, offer better flight connectivity, and services. Business cooperation will be seen in passenger sharing on reciprocal basis; Cathay will totally serve Air China passenger sales not only in Hong Kong, Macau and Taiwan but on code-shared and joint venture routes as well, operating under cost pooling arrangements. So, Cathay Pacific need not choose one of the two alternatives. Joint ventures, code-shared arrangements and oneworld alliance with other airlines are going to connect Cathay Pacific Airways not only with Mainland China but rest of the world as well.