Introduction

Hong Kong based airlines founded in 1946 1960s: Business grew at an average rate of 20% a year 2002: Cargo contributed to 30% of revenue 2005: 5 fold increase in profits over its profit in 2001 2005: Profit margins were deteriorating due to high fuel costs To sustain profitability, tight cost control and relatively rapid route expansion were key.

Outsourcing
Was a gradual process Stage 1 (1970s)- Inhouse (CPARS) Stage 2 (1990-1993)- Networks to SITA Stage 3 (1994-95)- New GM Stage 4 (1997-98)- Tough times, further outsourcing: Smart sourcing, data center, desktop. Stage 5 (2002)- Strategic IT- Procured PackegesWalker financial, PeopleCX, AiraCX etc; VIP Support; Implemented best practise purchasing process Stage 6( Post 2002)-New EVOLVEIT Strategy, Im Excellence, IMFit

Outsourcing at Cathay Pacific. Why it makes sense?

Mid 1980s: Outsourced networks to SITA which provided integrated telecommunications and IT solutions Why: To deliver systems at less cost, higher speed and with reduced risks. April 1997: Smartsourcing contract with IBM and Sabre Airline Solutions Sabre Airline Solutions: Airline applications were outsourced IBM: - IT infrastructure was outsourced - Australian data center outsourced - Desktop outsourcing done (computing equipment components and software maintenance ) Why: To align the Information Management department and the business strategy

Outsourcing at Cathay Pacific. Why it makes sense?

2002: Shifted away from smartsourcing Implemented best practice purchasing processes IM purchasing would issue standard RFIs and RFPs to decide the sourcing partner Outsourced web hosting to Hewlett- Packard Why: Ensured competitive supplier pricing Ensured suppliers provided competitive solutions

Advice in 2006 to reopen service to China

Enormous growth potential- When world airlines were struggling, Chinas aviation industry was the fastest growing PRC aviation market deregulation would allow access to the most profitable routes Direct flights between Taiwan and mainland China could result in 10%-15% drop in profit from the Taiwan route Enter China through strategic partnerships with PRC carriers by offering IT services

Risks involved in outsourcing to China

Data/Security Protection Vendor failure to deliver Turnover of key personnel Productivity fluctuations

Cultural differences
Differences in contractual Interpretations