Challenger That Cathic Pacific Facing

Challenges that Cathay Pacific is facing

Over the last few years, almost all countries around the world have undergone a strong economic development. This strong economic development was beneficial to different business sectors. However, as the economic condition deteriorates this year, the business environment is deteriorating. Companies in different sectors are facing different kinds of challenges and more seriously, some companies have even gone into bankruptcy. The airline industry has no exception.

Airline industry relies much on fuel in their daily operation and fuel is the major type of operation expenses. In this year’s interim report (2008), Cathay Pacific, one of the largest airlines in the world, reported the number of passengers traveled and volume of cargos carried have declined. It suffered a huge loss in operation in the last half year. According to Chris Pratt (2008), the chairman of Cathay Pacific, this was because the fuel price rose at a high rate during the last year. However, although there has been a rapid drop in the fuel price over these few months, Cathay Pacific has announced profit warning on its financial performance in this fiscal year because of its participation in hedging contract. This indicates that it is facing a huge challenge that has to be overcome in order to have profit.

In today’s financial market, the price of commodities is fluctuating. To reduce risk of fluctuating fuel price, Cathay Pacific has participated in hedging contract in fuel. By participating in the hedging contract, Cathay Pacific can cover part of the increasing operation cost from the gain from the hedging contract when the fuel price rises. However, in the last few months, due to the rapid fall in the fuel price, it suffers a loss in the hedging contract. Another way Cathay Pacific can ease the pressure of the increase in fuel price is to increase the subcharge which is included in the ticket price. As the increase in the subcharge need the approval...