Cathay Pacific Analysis - Essay Example

ines industry, with heavy commercial business in terms of passengers and cargo movements along the globe, and conversely, economic slowdowns and recession casts its gloom over the airlines industry in terms of empty seats and unused cargo capacities. This is precisely what has happened in the case of Cathay Pacific which was a victim of the East Asian Crisis way back in 1997, which resulted in massive falls in local currencies as against the harder ones. Thus the depreciation in currencies caused heavier debts in terms of reeling fuel costs, interest payment and debt repayments, that provided acceleration of crisis that left many airlines in virtual doldrums and staggering losses. 2. Stiff competition offered by smaller, no frills airlines, which are alarmingly lower on ticket fares and yet maintain excellent levels of service, causing high levels of passenger migration.

Larger airlines, with heavy overheads, operating costs and bureaucratic attitudes, cannot match these smaller airlines in terms of fares and benefits offered. 3. In the case of Cathay Pacific, it is seen that they have not been able to successfully hedge fuel costs, as a result of which, their woes are compounded. With oil prices fluctuated from $140/barrel at one point of time to just $45/barrel at another time, it became increasingly difficult for airlines to reasonably predict and hedge fuel prices, resulting in heavy losses.

“The fall in fuel prices, though welcome, caused unrealised mark to market losses of HK$7.6 billion on our fuel hedging contracts for the period 2009-2011 which were entered into in order to give a degree of certainty as to future fuel prices and protection against price increases.” (Cathay Pacific Airways Limited. 2008). 4. During the Asian currency crisis sparked off by the fall in the Thai baht during 1997, the tourist traffic in this part of East Asia virtually collapsed. Nearly 85% of tour bookings were cancelled or postponed, and nearly 40% fall in tourism