When acquiring Dragonair in 2006, Cathay Pacific did not merge the two brands nor co-branded both companies. With this decision, Cathay cleverly identified the different positioning between the two airlines and took aim to build both brands instead of merging them. Both brands have a clear market range and identity. Cathay with international routes from Hong Kong, has a more demanding customer that is willing to pay for quality and service within long flights. Dragonair on the other hand, supports a more regional focus, flying within Asia and more specifically to China where lower cost flights are appreciated in a high price sensitive market.

With both brands already well implemented in their markets and successfully positioned, a brand merge could have had generated a great loss of brand equity for Cathay or Dragonair, where a sudden inconsistency could have been surrounded by questions about which service to expect, which pricing to build in, which routes to take on, which identity, etc, especially when there is a large gap differences on respective target markets traits and expectations.
Strategically, it was a very smart move to complement Cathay portfolio to China, where the routes to Shanghai and Beijing are highly important. The deal placed Cathay to exploit the rapid growth in the passenger market in China, almost the second biggest global aviation market after the US, complementing its short routes to China with several Dragonair routes including the great Hong Kong – Shanghai, and also a joint venture with Air China. Cathay better coordinates connections through Hong Kong into China and offers more competitive prices for flights to Chinese cities from overseas destinations.

The combination of Cathay’s international reach and Dragonair’s well established branding on the mainland will mean a greater reach for the company, and a stiffer competition for other airlines. Cathay’s decision to retain the Dragonair brand name is not intended to create a “sub-brand”, as other airlines have done, to try and establish a presence in the “no frills” carrier market, but yes to cleverly manage both brands and build upon their equity developed before. Cathay offers a simple lesson on how extensions, re-branding, or co-branding can be wrong moves especially in the services industry, and how maintaining brand names after acquisitions could be a strategic move to develop long term growth as both are currently doing very well today.

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