PESTEL Analysis of Cathay Pacific
Muhammad Zeeshan Khan (Date: 06.01.2013)
The PESTEL analysis consists of six important forces from the external environment, which directly affects the strategic decisions of business in terms of political, economic, social, technological, environmental and legal environment (Appendix 3) (Johnson, Scholes and Whittington, 2005). The results of the PESTEL analysis of Cathay Pacific are shown following results.
Being an active player of airline and aviation sector, the decisions of the company are largely affected through political factors. Cathay Pacific is a global player, but its strategic decisions are mainly affected through governmental regulations and company cannot bypass the state rules and regulations of any country such as bans on airline, security controls. Further, the state policies are also affecting the decisions of the company. On the other hand, the favourable political structure in any countries produces opportunities for Cathay Pacific. However, the company is having pre-developed strategies and team of people to deal with political issues in all countries.
The decisions of Cathay Pacific are significantly affected by economic factors, even it can take the airline towards bankruptcy or closer. Majorly, the fluctuation of fuel prices is influencing factor, affecting strategic performance of companies. According to the crises of 2008-09, the major airlines went into bankruptcy due to hiking fuel prices and the cost of operations. Secondly, the recession in economy cycle also affects the strategic decisions, as the example of great recession is in front. Further, when Cathay Pacific operates in many countries, then economic indicators such as, unemployment rate of that country, interest rate, exchange rate, economic growth rate and other indicators directly affects the strategic decisions of the company. However, in a case study, there has been reported in efficiency of operations due to economic factors, caused a reduction in profitability and restructuring.
The strategic decisions of Cathay Pacific are largely affected through social factors. The Cathay Pacific has to operate its airline operations into multi cultures and having its established presence in various countries. The company’s policies, packages and services are mainly affected by social factors. The Cathay Pacific uses the combined approach of local plus global company, which are mainly focused on listening customers and providing the customers with extraordinary services. The technological initiatives like smart sourcing and IT outsourcing are also focused to improve the service level. Further, the Cathay Pacific also respects the local societal norms and values of people in each country and also celebrates the events such as Christmas, Easter and public events. In short, the company has to consider the social norms, cultures and values before operating into a particular culture.
The strategic decisions of Cathay Pacific are also affected through technological factors. Talking about technological culture, the company believes in progressive approaches for upgrading its technological level such as the examples of IT infrastructure development, smart sourcing, upgrading computer systems and purchasing technological equipment. Further, the other decisions, related to technology are, availability of IT equipment and skilled human staff, cost of technology, location of IT infrastructure, risks and contingency plans. The continuous improvement of technological level also helps in remain competitive as compared to other competitive in the airline industry.
The airline industry is greatly affected through environmental factors, because it also comes under strict environmental protection rules. The Cathay Pacific has to ensure that its operations are not affected environment adversely, so the implications for company are to use fuel efficient engines, waste management, recycling, noise management and engage in environmental protection activities. The Cathay Pacific cannot use such aeroplanes, which cause the pollution and produce high carbon emissions. It’s not only legal but also ethical and implied responsibility of Cathay Pacific to protect the environment (McFarlan and Young, 2003). However, the company is fully committed to perform its environmental responsibility and ensure sustainability through different initiatives.
As discussed above, the decisions of the airline industry are majorly affected through legal factors. The Cathay Pacific is also bound to follow the legal rules and regulations of not only by Hong Kong Based, but in all countries. Being a global player, mostly the aviation laws, corporate laws, international laws, airport laws, customer protection laws, safety laws, security and exchange commission laws, environmental laws and other regulatory laws. Cathay Pacific specifically considers the legal framework, international and domestic, before making strategic plans. However, the other contractual agreements like IT contracts, supplier contracts and other contracts are also ensuring compliance with local laws in order to ensure the compliance.
The findings of the PESTEL analysis have shown that the Cathay Pacific is facing a high level of threats from external factors, which must be considered during strategic planning along with preparing contingency planning for managing the impact of external factors.
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