Recommendation for
Cathay Pacific Catering Services (CPCS)____________________________________________________________________________________________________________________
Senior Executives: Regina Ip, Eric Wong
Presented to Jenny Lam
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 salesIssues
Recommendations
• Increase demand of meals will increase company revenue
• Expand network to international airports will increase independency Impacts
Underutilization of facility
resourcesDecrease in interline sales
To increase company revenueTo gain independency and
become a profit center
Partnering with schools Expanding internationally
Issue 1:
Underutilization of Facility Resources
Significant depreciation expense (32%) of the overhead cost
Negative Impact on Profit Margin
ANALYSIS | Alternatives | Recommendations | Implementations | Risks
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
Issue 2:
Decrease in Interline Sales Decrease in flight volume
84 8692
8892
68 66
5551 53
0
10
20
30
40
50
60
70
80
90
100
2006 2007 2008 2009 2010 (forecast)
Daily
Flig
ht A
vaila
ble
CPCS Flight Volumes (2006 -2010)
No. of flights of CX No. of flights of Interlines
ANALYSIS | Alternatives | Recommendations | Implementations | Risks
Issue 2:
Decrease in Interline Sales Decrease in dollar sales and sales unit to low budget airline
70.90 71.30
78.06 78.33 76.32
50
55
60
65
70
75
80
2006 2007 2008 2009 2010 (forecast)
Pri
ce p
er
Mea
l (H
KD
)
CPCS Price per Meal (2006 -2010)
ANALYSIS | Alternatives | Recommendations | Implementations | Risks
Alternatives____________________________________________________________________________________________________________________
Issue 1: Underutilization of Facility Resources
Alternatives
Increase utilization of facility resources
Partner with School Partner with Swire Group Expand on e-commerce
Analysis | ALTERNATIVES | Recommendations | Implementations | Risks
Decision Matrix
Partner with SchoolPartner with Swire
Group
Expand on
e-Commerce
Long-term Profit Generating
Existing Relationship -
Customer Engagement
Large Market Size -
Analysis | ALTERNATIVES | Recommendations | Implementations | Risks
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
Implementation Plans
Analysis | Alternatives | Recommendations | IMPLEMENTATIONS | Risks
Long Term Recommendation____________________________________________________________________________________________________________________
Expand Internationally by Joint Venture
Decision Matrix
Q Catering DO & CO Cara Operations
Base of Operation Australia United Kingdom Canada
CX Partners
Cultural Alignment -
In-flight Catering Focused
Likelihood of Cooperation −
Analysis | ALTERNATIVES | Recommendations | Implementations | Risks
Long-Term Recommendation:
Joint Venture with DO&CO Allows both parties to build a stronger market presence in London
Increase independence
Potential growth opportunities
DO&CO operates in Australia, Germany, Turkey, Italy, and USA
Current DO&CO facility size (sq. ft.) 4,500
Potential expansion on facility size (sq. ft.) 9,000
Cost of expansion (HKD) $200,000
100% facility utilization 6,300 meals per day
Analysis | Alternatives | RECOMMENDATIONS | Implementations | Risks
Implementation Plans
Analysis | Alternatives | Recommendations | IMPLEMENTATIONS | Risks
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
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 salesIssues
Recommendations
• Increase demand of meals will increase company revenue
• Expand network to international airports will increase independency Impacts
Underutilization of facility
resourcesDecrease in interline sales
To increase company revenueTo gain independency and
become a profit center
Partnering with schools Expanding internationally
Appendix
Total Revenue Partnering with School
Meal Volumes per Day
Net Revenue
Price per Meal
Market Price per Meal
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
CPCS Meal Volumes per Day
2006 2007 2008 20092010
(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
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
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 20092010
(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
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
