CATHAY PACIFICS OUTSOURCING TIMELINE

Prior to 1992 IT systems were developed and managed in-house 1992

BPO - Outsourced non-strategic functions for cost cutting Outsourced one of the major strategic resource - IT Shift from building and operating to acquiring and managing IT Identifying strategic suppliers to fulfil companys IT needs

Smartsourcing

Infrastructure (IBM) Airline Application (Sabre Airline Solutions)

Optimal combination of suppliers including the best of each vendors solutions and technology Data Center Outsourcing Network Outsourcing Desktop Infrastructure Management decided to either phase out legacy system or fully convert it by 2009-10 IM procured a number of packages PeopleCX, AiraCX, CXeBuy etc IBM Decided to retain Outport in-house as it was complicated Web-hosting HP

Post 2002: New EVOLVE IT Strategy

Support Business Strategy Development Create and Deliver Business Value Solutions Run reliable, flexible and cost-effective business applications

Cathay Pacific Sabre Airline Solutions

DO THEIR ACTIONS MAKE SENSE TO YOU? WHY?

Outsourcing led to a reduction in fixed cost

The instances such as loss due to fire break out in one of the Data Center locations can now be avoided by outsourcing Data Centers High fuel cost was eating into Cathays profit margins. Thus, to remain competitive cost reduction was important which was facilitated by outsourcing

Cost Reduction

Better focus on core aviation competencies Smart contract negotiation with IBM to absorb Cathays data center employees Good move to not outsource Outport workstations as supporting 3200 workstation spread over different locations would have been very challenging Introduction of EVOLVE ITensured all outsourcing activities would follow standard corporate purchasing process thereby improving market competitiveness

WHAT

ADVICE WOULD YOU LIKE TO GIVE TO THEM IN

LIGHT OF THEIR DESIRE TO REOPEN AIR SERVICE TO

RISKS INVOLVED IN OUTSOURCING TO CHINA?

2006, PARTICULARLY IN CHINA? WHAT ARE THE

PRC aviation market deregulation presented a host of opportunities for Cathay Pacific but at the same time presented risks that could endanger the profitability of Cathay Pacific. Opportunities

In contrast to global aviation industry, Chinas aviation industry was fastest growing in the world with enormous growth potential
Vastly improved IT infrastructure that could be leveraged by Cathay Pacific as it relies on IT to run its operations effectively and as a result being profitable Affordable talented IT engineers that could help in driving down costs

Option of forming strategic alliances with Chinese carriers to foster further development of IT capabilities
With the deregulation, Chinese carriers are likely to move into Hong Kong and other lucrative routes of Cathay Pacific. Thus cannibalizing Cathay Pacifics market share

Risks

Direct flights between China and Taiwan eliminating Hong Kong as a transit point, would reduce the profit generated on that route
Tough implications for Cathay Pacifics IT infrastructure that in due course could be copied by other airlines in the Chinese market, hence stressing on the continued IT evolution

Recommendation

With the acquisition of Dragonair and cross shareholding with Air China, it has to ensure that their IT systems seamlessly integrate or are replaceable with the current system in place. As it is one of the important factor in cost reduction for Cathay Pacific This would be in line with the new EVOLVE IT Strategy that focuses on reliability, flexibility and cost by creating business value and aiding in strategic business development

Form strategic relationship with Chinese carriers such as China National Aviation Co. and China Southern so as to reduce the head on competition and price wars which would result in huge loses in the advent of gaining market share across China
Leverage the IT infrastructure and engineers in China to fuel capacity expansion plans that would require adding of new destinations and increased frequency and thus might require more resources than the mainframe in Australia

Risks involved in outsourcing to China

The competitive advantage that Australia provided in terms of stable economic and political climate, developed IT infrastructure, competent skill base, inexpensive real estate coupled with tax exemption may not be available in China The human resource base of Cathay Pacific having a strong sense of commitment might not be the case when hiring from China There might be regulations that favour the Chinese carriers, thus reducing the competitive advantage.