Value Creation of Cathay Pacific Airways Hong Kong

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Introduction

Value creation has become one of the most important growth strategies that most airline firms have adopted in order to enhance performance, improve quality of service, boost customer satisfaction and maximize profits.

Alonso and Ogle (2010) posit that the main goal of airlines is to create and offer new and tailor made products and services with an aim of delivering additional value to consumers as part of parcel of maintaining a large and profitable market share.

As this paper shall analyze using Crosby’s and Deming’s theories of total quality management, value creation is a key source of success that requires quality planning, improvement and control. This paper succinctly examines the concept of value creation in Cathay Pacific Airline, its impacts and also concludes by providing viable recommendations for improving performance.

Background

Maintaining customer satisfaction has become one of the greatest requirements of most airline companies intending to compete favorably in the global market that is increasingly becoming competitive. Gilmore (2003) argues that offering value in terms of quality services becomes a key ingredient in attracting a massive number of customers and maintaining repeat customers.

According to Crosby’s theory on total quality management by Phillip Crosby, customers should be satisfied with the value of services offered by any airline firm so that they can develop loyalty towards a particular airline company. Quality service provision should be well articulated as this will enhance revenue base and customer equity.

In their publication, Olsen and Zhao (2005) argue that customer satisfaction that is derived from the quality of services offered remains to be a challenge for both low and high cost. However, there are vital predictors which can be used to assess the both the airline market and consumer needs.

These predictors or indicators include nature of ticket bought, income level of individual customers, ANOVA elicit frequency and logistic regression (Alonso & Ogle 2010). They are vital components that can be improved to add value to the services an airline company offers and can be implement in order to enhance its performance quality and service provision.

Additionally, another perception on customer perceived value is the risk across airlines. It is important to underscore that social, psychological and performance risks are superseded by physical risks (Olsen, & Zhao, 2005).

As such, the concept of customer perceived value and service effectiveness in airlines demands that orientation services be created among airline internal suppliers, creation of service benchmarks through mergers and an increase in infrastructure outlay.

In terms of the ANOVA elicit frequency, most airline companies find it quiet challenging to manage both the growing market competition as well as meeting the diverse needs of customers. The logistic regression challenge also depicts how frequent these airlines are supposed to either change their aircrafts or service portfolio (Barrows & Powers, 2009).

Definitions

Value creation is an important concept in running of an airline. Major airlines like British Airways and Cathy Pacific airways use value creation strategies in their operations (Hearns, Devine & Baum, 2007).

Value creation primarily refers to application of new methods with an aim of delivering additional value. It is the raison d’être of a corporation through which its effectiveness is measured (Alonso & Ogle 2010). In other words, value creation theory attempts to seek ways and means through which an airline company can boost its current level of service provision to meet the diverse needs of consumers.

Peric, Mujacevic and Simunic (2011) point out that value creation primarily distinguishes between a performing and a non-performing airline enterprise. In an airline business, depending on the satisfaction level of customers, there are other merging emerging concerns that ought to be put into consideration at all costs.

According to the Ishikawa’s theory on quality improvement, effective and comprehensive understanding of the requirements or needs of consumers as dictated by the nature of products, price or service being offered will quite often offer an objective opinion and that would be the customer perceived value (Peric, Mujacevic & Simunic, 2011).

Therefore, there are two key drivers that come into play before customer perceived value is met. These are the quality of services being offered by an airline and the long term impression which customers have against a particular airline company.

Alternatively, it could also be defined as the scenario whereby customers, especially prospective ones, are able to evaluate the opportunity cost of the various services being offered and also be in a position to compare both real and perceived options (Sims, 2002).

Value creation concept

Cathay Pacific Airways of Hong Kong has its busy airline operations which include cargo and passenger services worldwide travelling across 36 countries with 114 destinations (Gilmore, 2003). Other operations include joint ventures and code shares with its 132 aircrafts (Olsen, & Zhao, 2005).

It has several services on offer to its customers and these include catering, in-flight entertainment, technology, first class, travel class, business class and economy class services (Lamb, Hair & McDaniel 2009).

Reports indicate that in 2009, cargo and mail of over 1.52 million tones together with 25 million passengers were transported using 56,000 operations of Cathay and its fully owned Dragonair flights (Alonso & Ogle 2010). These statistics and achievements do not mean that it has not had its incidents and accidents.

For instance, it was the first commercial airliner to be hijacked in 1948 and after that several other incidents and accidents have occurred with the recent happening in April 2010 where one of its airbuses, an A330-300’s engine failed during landing forcing it to land at twice the normal speed (Anvari, Amin & Seliman.2010). The result was catastrophic.

It is against this background that this airline needs to increase its service quality towards excellence. In airline industry, competitive marketing strategies centering on creation of excellent services, innovation and customer focus are some of the ways of ensuring service quality (Alonso & Ogle 2010).

It is also worthy to mention that customer segmentation, customized service and persistent feedback from consumers is prevalent in spite of the fact that homogeneity is a common characteristic on the operations of the airline (Olsen, & Zhao, 2005).

The airline suppliers use these characteristics in the Cathay Pacific airlines services together with other variants in the marketplace to gain a competitive edge (Clarke, & Chen, 2007). The quality of airline services needs to be improved as these influences the choice of passengers of an airline.

These performances are measured using five parameters namely empathy, assurance, responsiveness, reliability and tangibility (Barrows & Powers, 2009). Reliability, empathy as well as tangibles were found to be very instrumental as measuring scales for value creation within the airline industry.

Additionally, QUALITOMETRO was also found to be an important parameter to be used in measuring the worth of services being offered (Kim, 1997; Ritchie & Fick, 1991; Rossetto & Franceschini, 1987; D’Annunzio-Green, 2002). It is important to observe that service quality dimensions are of two view points- objective and subjective (Lamb, Hair & McDaniel 2009; Barrows & Powers, 2009).

According to Schvanevelt (1991), the dimension of absence or presence of a particular service quality indicates the objective point while the sense of satisfaction or dissatisfaction due to a quality of service by a customer is indicated by a subjective view point (Alonso & Ogle 2010; Clarke, & Chen, 2007).

Additionally, the concept of value creation using SERVQUAL and the designed SERVEPREF by Cronin and Taylor (1992) includes other quality services that an airline, with an emphasis on Cathay Pacific Airways, can apply to improve its services and measure its customer evaluations (Lamb, Hair & McDaniel 2009).

These additional methods include in-flight comforts and connections, operations and safety, bumping procedures, and baggage handling (Olsen, & Zhao, 2005).

Furthermore, it is vital to emphasize on creating intangible services such as operations and safety as it is used by travelers who rely on it to evaluate airline selection (Sims, 2002).

The perception among passengers of selecting an airline changed after the SARS and the 9/11 crisis and that is perhaps why it is important in all the environmental events, to observe the behavior and the perception of customers (Baqir, 2010; Chen, Wang & Chu. 2010).

Cathay Pacific Airways has had its share of misfortunes being the first commercial airliner in the world to be hijacked in 1948 and after that several crashes and accidents that led to loss of life and profits.

Other risks perceptions that the Cathay Pacific Airways needs to be aware of as categorized in the SERVPREF by Cronin and Taylor (1994) include the overall risk, social risk, psychological risk, physical risk, performance risk and financial risk (Anvari, Amin & Seliman.2010; Chen, Wang & Chu. 2010; Clarke, & Chen, 2007; D’Annunzio-Green, 2002; Olsen & Zhao, 2005). Hence, service quality through the application of conceptual models is necessary as part and parcel of not only impelenetinmg modern technological platform but also ascertain that e-service is understood by users (Sims, 2002).

Aims and objectives

Airline industries can gain competitive advantage through value added services. There are quite a number of factors that would ensure customer satisfaction. For instance, the 2 Ps approach has been found to be a very viable way of increasing competitive advantage in the airline market.

These are growth strategies and physical evidence are deemed to be strategies that add value to service delivery (Lamb, Hair & McDaniel 2009). Such services which include appearance of the personnel, technology and so on will determine the future intentions of occasional or repeat passengers to revisit the airline or not and whether the service they receive equals value for money (Thyne & Laws, 2004).

For customers to be satisfied, both the cost of fares, the speed of service delivery and the quality of services being offered by the airline will be of utmost importance.

The value of the airline in terms of services being offered is largely determined by the output in especially in terms of client feedback (Assante, Mulaj & Steed, 2011). In relation to that value perceived when offering services has been hypothesized to be directly proportional in this essay.

The two components are also important parameters that can be used to forecast perception behavioral patterns as well as the quality of services being offered (Gilmore, 2003; Thyne & Laws, 2004; Williams & Uysal, 2003).

The behavioral pattern of consumers will quite often depend on the how they have been treated or the nature of services they have received in a particular airline company over a given period of time.

Value creation strategies

Airline companies have adopted physical evidence and process strategies that are aimed at improving Customer Relationship Management (CMR) as a tool for creating customer loyalty, satisfaction and for managing customer relationship (Anvari, Amin & Seliman.2010; Barrows & Powers, 2009). Both the strategies ensures creation of a fast, effective and efficient way of service provision (Kusluvan, 2003).

Physical evidence

According to the added value theory by Adam Bradenburger, physical evidence is a fundamental strategy in airline business as it provides customers with substantial proof of services or products offered. Physical evidence in terms of service delivered plays an important role in determining the quality of service offered to customers (Hearns, Devine & Baum 2007).

The latter often tend to judge an organization depending on the experience they get from the environment they are getting their services. The first class experience at the Hong Kong International Airport shows a quality that has been viewed as a competitive marketing strategy in the airline industry (Olsen & Zhao, 2005).

The commitment of Cathay Pacific in giving quality service is part of its new sustainable development strategy. So far, there are several measures that the company has put in place to impress its consumers.

For example, at the check-in point of its first class passengers, there is an advanced state of the art facility for its customers whereby there is a resting place coupled with other personal services that are necessary after long journeys (Anvari, Amin & Seliman, 2010). Physical evidence has both managerial and methodological implications (Jagels & Ralston, 2007).

Neoclassical theorists like Fayol, Weber and Taylor posit in their organizational theories that what determines the behavioral intentions of customers of an airline flight are comforts and services such as a clean and friendly environment, in-flight, ground and baggage services and therefore it is imperative that high quality services be increased for reasons of profitability (Anvari, Amin & Seliman, 2010).

There are a number of factors that follows airline companies that don’t have quality service strategies. Research studies have indicated gray areas such as lack of flight cleanliness, costly tickets, time lag in connecting flights, cancellation of flights and lack of provision for pregnant women (Alonso & Ogle 2010; Baqir, 2010).

The Cathay Pacific has organized its first class services and comfort in a manner that it revolves around value perceptions that customers have on risk, image, value, price and repurchase intentions (Assante, Mulaj & Steed, 2011).

Additionally, in order to meet passengers’ expectations and perceptions of service, Cathay Pacific offers amenity kits for first class passengers on long-haul flights such as travel bags and Acca Kappa products from Switzerland and Italy respectively and basic essentials such as mouthwash, toothpastes and toothbrushes (D’Annunzio-Green, 2002).

Due to the myriad of risks associated with travelling by air, the airline has already put in place various measures especially on safety norms as well as handling grievances arising from clients. It has the best seats that can extend into full length bed with luxury from sleep suits offered, pillows and duvets (Anvari, Amin & Seliman, 2010).

Besides, there is more than enough entertainment in the first class cabin with each passenger in the first class cabin having a television, an Audio-Video-On-Demand and over 20 channels to watch.

Process

Process is an important factor in airline business as it fosters goal setting, reinforcement, equity and expectancy necessary to boost the overall performance of an organization. According to Victor Vrooms Expectancy theory, in order for a company to win the hearts of its customers, it must look beyond fulfilling customers’ needs the ordinary way to doing it in a fast, smooth and efficient way possible (Hearns, Devine & Baum, 2007).

An airline company like Cathy Pacific needs to deliver its services faster and efficiently (Tesone & Pizam, 2010; Chen, Wang & Chu, 2010). Cathay Pacific airline has improved its first class services at the check-in podium basically to improve the speed and quality of service (Clarke, & Chen, 2007).

For instance, it has created an 10 new additional check-in podiums with flat screen and latest computer technology to facilitate speed (Gilmore, 2003). Additionally, it has created passengers check-in screens that allow them to check important flight information such as arrival and departure time so that they do things in time (Baqir, 2010; Clarke, & Chen, 2007; Hearns, Devine & Baum, 2007).

Furthermore, in order for passengers to enjoy a hassle-free and quicker check-in service, it has introduced thorough process of a single queue concept (Chen, Wang & Chu, 2010). This approach has been integral bearing in mind that the airline company using this airport as a landing destination for most of its flights (Assante, Mulaj & Steed, 2011; Barrows & Powers, 2009).

To balance its growth with rival airliners, it has improved the functions of its airline facilities such as the check-ins and the boarding gates, the pier and the wing and its business and first class lounges (Alonso & Ogle 2010; Anvari, Amin & Seliman, 2010; Mills, Meyers & Byun, 2010).

Through process, the first class superior operations of Cathay Pacific have seen it attract customers and other important business persons from across the globe. For example, the use of advanced technology in notifying customers on the progress of their flights is excellent.

E-mail messages as well as the use of mobile phones are common. Clients are kept up to date with information regarding their flight. Another technology in place is the application of paging.

The aforementioned technologies have also enabled those planning to take various flights to download flight timetables at an instance (Clarke, & Chen, 2007; D’Annunzio-Green, 2002; Kusluvan, 2003).

In addition, Cathay Pacific, through the use of the latest technology, enables Taiwan nationals and residents to choose their class of travel, whether first or second class. This is done solely through the internet, anywhere anytime (Mills, Meyers & Byun, 2010; Barrows & Powers, 2009; Chen, Wang & Chu, 2010).

Recommendations

Although this airline company has made important strides and far reaching measures in ensuring that it meets the needs of both its current and prospective consumers, there are still myriad of loopholes that ought to be sealed if the company is to remain profitable as well as competitive.

To begin, it is crucial to note that the airline industry is highly dynamic both in terms of growth as well as demand and supply. While the management at Cathay Pacific may opt to run the company based on its originally set objectives, it is inevitable that dynamism will improve the performance of the company.

As part of the recommendation, in the It is suggested that there is dire need for the management at Cathay Pacific to expand its marketing base. There is need to explore other markets and flight destinations so that the company does not just rely on the fixed number of customers.

This definitely calls for the rapid creation of various market segments that will cater for consumers from all walks of life. As such, both low and high income earners should be able to find it comfortable to seek the services of Cathay Pacific airlines.

Various market segments should also be compounded with wide array of services for its customers. The company should not only focus on the current level of services being offered but also make sure that it creates other tailor made products that suit all types of consumers.

Each of the tenets that govern customer retention and satisfaction should be looked at carefully by managing the forces of change brought by globalization, privatization and recession.

In addition, there is need for the company to use both old and new offerings to target market segments and improve the services of the other classes to the standard of First Class focusing the strategy and attention to corporate and customer needs.

Conclusion

To recap it all, it is vital to reiterate that continuous improvement programs and progressive quality of service as discussed in the paper are crucial tools that management team at Cathay Pacific airline should use to attract and create customer loyalty.

On the other hand, a good market segment relies on the quality of the services and products being offered by the company. It is therefore highly advisable to put in place a well designed customer and market satisfaction platform since each of them has both direct and indirect effects in meeting the strategic goals of this airline enterprise.

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