Cathay Pacific Doing More with Less Lecture 16 Cathay Pacific Doing More with Less

Cathay Pacific Characteristics Mid-tier airline 15,000 staff, 77 wide body aircraft Old airline – 50 years history Vulnerable to cost cutting airlines Global everywhere except China Lost landing rights in 1984 Geographically next to largest market but cannot access Excellent reputation for service Historically profitable Joined OneWorld alliance, increasing USA flights 30%

IT at Cathay Pacific: 1970s Standalone development and operations activity Strategic value, attracted best IT staff Homegrown reservation system sufficiently good that Cathay sold to other Asian airlines Large computing center, 10-12 mainframes running 24/7 Independent with large no. of developers Fun place to work IT building leading-edge systems, valued in company (still there as legacy today)

IT at Cathay Pacific: mid/late 1980s From develop/operate to acquire and manage IT no longer used to differentiate SITA handle complex telecom needs globally Telecom is often first IT area to be outsourced Began move from design and coding to acquiring packages and deploying Department name changes from “systems development and support” to “systems delivery” Emphasis on faster, cheaper, lower risk installations Less exciting employer for young tech staff Operations expanded to three data centers Issues of control intensified with 1991 fire in data center Mid-size player and IT not sustainable competitive advantage IT more of a necessity Challenge to be quick follower instead

IT at Cathay Pacific: 1990s Continued trend from 80s Already outsourcing other core functions such as medical clinics, elevator repair for many years Outsourcing part of culture but not for key strategic activities 1995 moved data center to Sydney, Australia 2/3 of IT spending now 4000 miles from Hong Kong headquarters Similar timezone Seems to have maintained service levels Save significant costs Australia stable, lower land and tax costs Strong financial, infrastructure, strong IT skills RISKS? Distance, communication, vulnerability Seems to have worked? Should they move again???? Cost pressures IBM / Sabre preferred vendor Commitment to Sabre software aligned with leading airline software provider Smartsourcing 2000, desktop infrastructure outsourced to IBM for $50 million, five year Continued migration from homegrown to package software.

2001 and beyond 300 people in IT organization Legacy systems support Systems delivery 200 people decentralized to users and responsible for package management Weakened IT heritage 100 people work in planning and architecture, selecting and evaluating packages for long term 3200 outport stationsin 47 parts of world where IBM doesn’t operate Providing hand-holding to ten most senior people in company and their assistants! HP manages website

Now what? Downsize entire IT team and outsource all? Move data center to China?