AF3317 Risk Management
2011/12 Semester 1- Group Project
Cathay Pacific Airways Limited
Name:
Chan Ka Ki, Nick (09525590D)
Chung Tong Hoi, Matthew (09099509D)
Wu Hoi Kit (09549316D)
Tutorial Section:
TUT004 (Thu 13:30 – 14:20)
Group No: 1
Date: 7 November 2011
Table of Content
1
1. Introduction
(Wu Hoi Kit)
p.3
2. Risk Identification
(Chan Ka Ki)
p.4-5
3. Risk Evaluation
(Chan Ka Ki)
p.5-7
4. Risk Control
(Chung Tong Hoi)
p.8-10
5. Suggestions
(Chung Tong Hoi)
p.11-12
6. Summary
(Wu Hoi Kit)
p.12-13
Appendix p.13-14
Reference p.15
2
Risk Analysis of Fuel Price in Cathay Pacific Airways Limited
1. Introduction
Cathay Pacific Airways Limited is an international commercial airline based in Hong
Kong. The company limited is listed on the Hong Kong Stock Exchange. (Stock code:
00293). The aviation services provider has 65 years of history and the main hub is
located in Hong Kong. In 2010, the airline has offered passengers and cargoes
transportation services to 141 destinations in 39 countries all around the world. Being
one of the best airlines, Cathay Pacific is a member of the “Oneworld global alliance”
so as to strengthen their services worldwide. In Asian region, this industry leader
wholly owns Hong Kong Dragon Airlines to reinforce their top position and maintain
their domestic services. Regarding the fleet profile, the group has a total of 167
aircrafts operated in its business.
In such an international airway company, Cathay Pacific incurs a variety of cost in its
business, for example, fuel cost. Especially in the aviation industry, fuel is the heart of
the business. The oil price is the largest cost in the total operating expenses.
Therefore, market risk of oil price is one of the major risks that this multinational
corporation has to deal with. Regarding its risk management tools, the company has
different measures to soften the impact from the volatility of the oil price.
In this research, it mainly focuses on the fuel price risk in 2010, which is a kind of
market risks in the risk exposure. In-depth analysis to the commodity price risk faced
by Cathay Pacific will be provided. Secondly, risk identification is used to determine
the market risk. The fuel price risk will be evaluated by Value at Risk. It is then
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followed by risk evaluation. Further illustration will be based on the risk control
methods implemented by the airline. Recommendations and conclusion will also be
stated at last.
2. Risk Identification
Cathay Pacific is an international air services provider in the world. To maintain its
top airline position, risk management department is vitally essential for the whole
corporation. There are many sources of risk arising from various environments such
as physical, social, economic, operational or political aspects. In the following
analysis, economic risk will be identified to examine the relation between the fuel
price risk and the firm’s operation cost.
From 2006 to 2010, the financial environment was relatively unstable due to the
financial crisis starting from the beginning of 2007. The market risk is so large that
the aviation industry might suffer losses. The demand for transportation from
