Recommendation for Cathay Pacific Catering Services (CPCS)
1. Recommendation for
Cathay Pacific Catering Services (CPCS)
____________________________________________________________________________________________________________________
Senior Executives: Regina Ip, Eric Wong
Presented to Jenny Lam
2. Executive Summary
•Short term: To increase the company’s profit margin
•Long term: To gain independence and become a profit centerGoals
•Underutilization of facility resources
•High employee turnover rate
•Decrease in interline sales
Issues
Recommendations
• Increase demand of meals will increase company revenue
• Expand network to international airports will increase independencyImpacts
Underutilization of facility
resources
Decrease in interline sales
To increase company revenue
To gain independency and
become a profit center
Partnering with schools Expanding internationally
3. Issue 1:
Underutilization of Facility Resources
Significant depreciation expense (32%) of the overhead cost
Negative Impact on Profit Margin
ANALYSIS | Alternatives | Recommendations | Implementations | Risks
4. Issue 1:
Underutilization of Facility Resources
Indicate a potential growth on facility utilization
2009 Facility Utilization Meals Served Revenue (HKD) Revenue Increase (%)
Total Capacity 100% 80,000 $3,552,771 30%
Current Production 77% 61,600 $2,735,634 -
Potential Production 90% 72,000 $3,197,494 17%
LSG Level 87% 69,600 $3,090,911 13%
Gate Gourmet Level 92% 73,600 $3,268,550 19%
ANALYSIS | Alternatives | Recommendations | Implementations | Risks
8. Alternatives
Increase utilization of facility resources
Partner with School Partner with Swire Group Expand on e-commerce
Analysis | ALTERNATIVES | Recommendations | Implementations | Risks
9. Decision Matrix
Partner with School
Partner with Swire
Group
Expand on
e-Commerce
Long-term Profit Generating
Existing Relationship
-
Customer Engagement
Large Market Size
-
Analysis | ALTERNATIVES | Recommendations | Implementations | Risks
10. Short Term Recommendation:
Partner with Schools
Target approximately 30 elementary schools within 30 to 60 minutes drive
Provide freshly cooked, healthy, and nutritious meals to students
Selling Price per Meal (HKD) $ 50
Estimated Profit per Year (HKD) $540,000
Analysis | Alternatives | RECOMMENDATIONS | Implementations | Risks
16. Risk and Mitigations
Risk Likelihood Impact Mitigation
DO&CO does not enter a joint
venture with CPCS
Low High Negotiate with Q Catering or Cara
Operations Ltd.
Regulations on facility expansion Medium Low DO&CO has others locations
No school would like to join the
programs
Low Medium Look for schools that are beyond the
preferred distance
Analysis | Alternatives | Recommendations | Implementations | RISKS
17. Recap
•Short term: To increase the company’s profit margin
•Long term: To gain independence and become a profit centerGoals
•Underutilization of facility resources
•High employee turnover rate
•Decrease in interline sales
Issues
Recommendations
• Increase demand of meals will increase company revenue
• Expand network to international airports will increase independencyImpacts
Underutilization of facility
resources
Decrease in interline sales
To increase company revenue
To gain independency and
become a profit center
Partnering with schools Expanding internationally
19. Total Revenue for Partnering with School
Schools 30
Students per School 600
Total Students 18,000
Expected turnout 15,000
School Days per Year 180
Price per Meal (HKD) $50
Variable Cost/Meal −23.66
Contribution Margin $26.34
Fixed Cost per Meal −15.83
EBIT per Meal $10.51
Total Revenue (HKD) $135,000,000
EBIT $28,400,000
20. CPCS Meal Volumes per Day
2006 2007 2008 2009
2010
(forecast)
CX 39,353 41,547 45,836 44,825 48,499
Interlines 17,466 17,100 13,899 12,487 14,647
Total 56,819 58,647 59,735 57,312 63,146
21. CPCS Net Revenue
In million
(HKD) 2006 2007 2008 2009
2010
(forecast)
CX 507 529 609 572 614
Interlines 452 445 396 357 408
Total 959 974 1,005 929 1,022
22. Price per Meals
Price per Meal =
Net Revenue
Meal Volume per Day×365
Weighted Average =
Total Net Revenue
Total Meal Volumes per Day×365
(HKD) 2006 2007 2008 2009
2010
(forecast)
CX 35.30 34.88 36.40 34.96 34.96
Interlines 70.90 71.30 78.06 78.33 76.32
Weighted Average 46.24 45.50 46.08 44.41 44.34
23. Market Price per Meal
The average market price per meal is HKD$60, and CPSC is charging HKD$78 to the
Interlines.
Average Price per Meal =
Revenue
365
÷ Average Meal Production per Day
Editor's Notes
Although CPCS is with the most amount of staff and facilities, it has the lowest facility utilization among its competitors (LSG and Gate Gourmet). In addition, CPCS has a significant depreciation expense, which takes over 32% of its overhead cost in 2009.
Although CX flights had been increased by 10% over the 5-year period, flight volumes had decreased by 5% due to a 22% reduction in interlines flights.
Although the meal volumes had increased by 11% over the 5-year period, interline meals had declined by 16% due to reduced customer based and flight volumes. Another reason is that the unit price of the meal increased during the recession time. This causes the low budget airline to switch out of CPCS and seek for alternatives.
As LSG and Gate Gourmet both operates in Heathrow Airport in London, if CPCS entered a joint venture with DO&CO, there will be a strong market presence in London
In the future, CPCS can build business relationship with airlines, preferably CPCS and DO&CO customers