Cathay Pacific PESTLE Analysis

Published in Companies category by MBA Skool Team

Here is a detailed PESTLE analysis of Cathay Pacific which examines political, economic, social, technological, legal & environmental factors.

Political Factors:

The political factors in the Cathay Pacific PESTLE Analysis can be explained as follows:

Cathay Pacific is a Hong Kong based airline. A law was passed by mainland China allowing extradition from Hong Kong. Later, the Civil Aviation Administration of China (CAAC) issued a risk warning to the company. The warning was related to a pilot and two employees who were alleged of rioting during the protests against the law. It was also found that almost 2000 of its employees also took part in a strike related to the same cause. Such actions by the company’s employees can damage the company’s relations with the national government.

Finally, this can affect the operations and financial performance of the company. Also, the Covid-19 induced lockdowns by various national governments has impacted severely the financial performance of the company. The airlines decide to allow only 10% of its services to mainland China for 2 months due to the pandemic. Also, the airline reduced its overall flight capacity to 70% pre-COVID-19 levels.

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Economic Factors:

Below are the economic factors in the PESTLE Analysis of Cathay Pacific:

Since Cathay Pacific is a global company, its revenue comes from many foreign currencies. This exposes the company to exchange rate risks.

The company uses hedging instruments like derivatives and also uses foreign currency borrowings to reduce its exchange rate risks. Yet, this does not completely eliminate the risk due to exchange rate fluctuations. Also, the pandemic has had a severe impact on the finances of the company. The company had to take several measures to mitigate this risk: capacity reductions, pay cuts of executives, voluntary leave schemes, cancellation of projects, bargaining for concessions from its suppliers, etc. The company even chose to postpone delivery of Airbus aircrafts to later years. Despite these measures, the company has suffered a dent in its revenues and would take time to recover. Apart from these risks, the company also faces interest rate risk. This is because the company has made long-term borrowings at floating interest rate. Any increase in rate could affect the company profitability negatively.

Social Factors:

Following are the social factors impacting Cathay Pacific PESTLE Analysis:

Like all airlines, Cathay Pacific is governed by social factors. According to the Global Wellness Economy Monitor, wellness tourism was valued at $600 billion & travelers made more than 800 million wellness trips. Most of this growth was seen in the Asian markets, both in terms of wellness trips and expenditures on tourism. It has also adapted to and taken advantage of such opportunities in the market. The airline started a 700 square foot yoga and meditation sanctuary. The airline also partnered with Pure Group to enable the transition to a new experience of wellness via gym and yoga facilities. Before that, the airline also recruited the famous chef, Daniel Green to help prepare healthy food at flights. The airline has also released videos titled ‘Travel Well with Yoga’ for its passengers to practice at the comfort of their seats. Thus, there is a huge wellness and wellness tourism market to be tapped. Cathay Pacific can certainly increase its revenue by continuously tapping these opportunities in the future.

Technological Factors:

The technological factors in the PESTLE Analysis of Cathay Pacific are mentioned below:

The company has come up with innovative technologies like Cathay Pacific Virtual hub. This technology allows pilots of the airline to log in to a site and participate in virtual simulator exercises and even run drills from anywhere. In another example of innovation, the company launched the world’s first interactive 3600 video advertisements. Such campaigns have also shown better consumer engagement than traditional 2-dimensional advertisements. The new Cathay Pacific advertisement allows customers to virtually tour on a journey, right from check-in desk to the cabin. There is also another feature for user – clicking on specific hotspots within the image. This feature allows them to get additional information about a characteristic they would like to know. The company has also developed its IT systems to deliver better value to customers. For example, they developed the Disruption Management Programme. In case of any cyclone causing delays in flight, an automated system enables passengers to re-book flights.

Thus, this allows timely and hassle-free flow of information during adverse weather conditions.

Following are the legal factors in the Cathay Pacific PESTLE Analysis:

Cathay Pacific is subject to the legal jurisdictions of the company it operates in. Any changes in the regulations related to safety, fares, etc may raise the cost of compliance. Even though the company focuses on protecting customer data, it is susceptible to issues. Lot of personal details related to passengers’ names, passports, date of birth, email addresses, phone number, past travel data need to be safeguarded. Apart from this, the company could also face penalty under the law related to the General Data Protection. Thus, any such cases of data breaches in future could impact further the financial performance of the company.

Environmental Factors:

In the Cathay Pacific PESTLE Analysis, the environmental elements affecting its business are as below:

Climate change presents a great threat to the environment, and airlines are under pressure to reduce their emissions. The company, cognizant of this fact, has made few changes in this respect. For example, it added 8 Airbus A350-1000 IN 2018 and is scheduled to receive 12 more in 2021. These are advanced aircrafts with carbon-fiber plastic. These aircrafts come with the added advantage of lightness in design and cost-effectiveness, as less maintenance is required. The Airbus A350-1000 is 25% more fuel efficient than the older generation of aircrafts. Cathay Pacific has also adopted biofuel instead of the traditional fossil-based jet fuel. In 2018, the company even began construction of a bio-refinery plant in Nevada, USA.

The plant will convert about 175000 tons of waste into close to 10 million gallons of biofuel per annum. Moreover, the company has also entered into an agreement to buy 1 million tons of Sustainable Aviation Fuel for the next decade. Thus, the company is taking effective steps to control environmental damage, and even benefit profitably from the actions it has taken.

To conclude, the above Cathay Pacific PESTLE Analysis highlights the various elements which impact its business performance. This understanding helps to evaluate the criticality of external business factors for any brand.

This article has been researched & authored by the Content & Research Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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