Spring Airline sees sky-high potential in China's no-frills traveling market

Living in small and cheap hotels with two people sharing a room in downtown London or Singapore, making their own meals in the hotel kitchen with a pressure cooker brought from home, eating only porridge and pickles for dinner.

It doesn't seem much of a life, does it?

This is not one of those now banal inspirational stories of two partners at the start-up stage of building a later greatly successful enterprise but the real life of Spring Airlines' executives when they are on business trips.

As the nation's most successful private airline company and only budget carrier, Spring Airlines Co Ltd has established a strict cost control regime to maximize profits and outperform its State-owned competitors that have posted steep drops in earnings despite enjoying government subsidies.

"When we go to the conferences in London and Singapore, we take the bus or subway, not taxis," said Wang Zhenghua, founder and chairman of Spring Airlines.

According to an old Chinese saying, 70 is an age that people rarely reach but 70-year-old Wang is still full of energy and passion to make his carrier more successful and financially sound.

"We do everything possible to cut costs and that's the reason why we can offer extremely low ticket prices for passengers," Wang said.

According to him, the company's marketing expenditure is only 20 percent of its Chinese counterparts. Management costs are 30 to 40 percent lower than the market average.

Wang was not born an astute businessman. He first became an entrepreneur at the age of 40 after quitting public service in Shanghai. With start-up capital of 1,000 yuan and some preliminary research on China's tourism market, Wang discovered his own managerial talents.

Within 10 years, Wang turned Spring Travel Agency, which he established in 1981, into a leading tourism agency in China. But being ambitious and creative he was not satisfied resting on his laurels.

After gaining adequate experience in running the agency, he launched the low-cost Spring Airlines in 2004, a milestone in China's aviation history that enabled more Chinese people to afford to fly.

Although there is an unwritten law in the domestic aviation market that says no company will make a profit in its first three to four years of business, no matter how well it operates, Wang and his team shattered that myth by making a profit in its first year even though they only had three planes in operation.

Few would now disdain Wang and his dream, which is to emulate the huge success of the world's first budget carrier, Southwest Airlines. Currently, the Shanghai-based carrier has a fleet of 36, 14 of which are owned by the company.

"We plan to expand our fleet size to 60 by 2015. That's many more each year," Wang said.

Wang's aggressive expansion is backed by the carrier's much-higher-than-average seat-kilometer utilization, a key indicator to reflect a carrier's operating efficiency.

Public information shows that even during the poor market in 2012, Spring Airlines maintained a seat-km utilization of up to 95 percent, in stark contrast with the industry average of between 79 and 80 percent.

"Seat-km utilization is the lifeline of an airline. Usually a carrier has to reach between 70 and 75 percent to strike a balance," said Li Lei, an analyst with Minzu Securities.

Accurate positioning, successful marketing and sales have secured a high rate of seat-km utilization for the carrier, which in turn ensures Spring Airlines stays profitable even during economic downturns.

"The carrier also finds great support from its parent company Spring Travel Agency, which guarantees a high passenger flow," Li said.

As Spring Airlines relishes the success of a low-cost operation, there is a rising number of traditional airlines starting to undertake cost-cutting strategies to gain a bigger market share.

One of the latest budget airline players is China Eastern Airlines Co Ltd. It set up a joint venture called Jetstar Hong Kong with the Qantas Group to tap into the low-cost flight market.

"I welcome China Eastern and its partner onboard," said Wang, expressing calmness in the face of competition.

"The budget airline market is full of potential in China but we are currently the only low-cost carrier with less than 3 percent of a stake in the nation's aviation market," Wang added.

In Europe and the United States, budget airlines usually take up between 25 and 30 percent of the aviation market, with the world average at about 25 percent.

Wang is never short of solutions to fend off competition from his rivals. For example, when he found low prices were not enough to attract passengers, he decided to offer themed flights by dressing flight crews as maids or butlers.

"Most of our customers are young white-collar workers. We offer such themed flights to meet their demand," said Spring Airlines spokesman Zhang Wu'an.

According to the spokesman, the clothes are designed in accordance with the tastes of young people and are cuter than the traditional flight attendants' uniforms.

"We called them maidservant clothes and butlers' clothes because we want to stress their purpose is to serve customers," Zhang added.

Apart from the themed flights, Wang is also considering launching in-flight car sales during Spring Airlines flights.

"I started to dream of selling cars on planes ever since the establishment of Spring Airlines," said Wang, adding that the decision is made based upon their own special conditions.

There is more free time for flight attendants on Spring Airlines because they do not have to serve every passenger with drinks and food during flights. They therefore have time to advertise goods.

According to Wang, 80 percent of the company's more than 10 million passengers per year book tickets online. They tend to be white-collar workers at the stage of buying their first car or home.

"These are the foundations for in-flight car sales," added Wang.

Wang said he has more dreams to realize. "I have always wanted to launch flights between Shanghai and Taipei. The current ticket price between the two cities is even more expensive than the combined ticket price of traveling from Shanghai to Hong Kong and from Hong Kong to Shanghai," Wang said.

But, unfortunately for Spring Airlines, the company's application to begin flights to Taiwan has been rejected every year by the Civil Aviation Administration of China for reasons known only to itself.

"We started to apply every year since 2007 but never received approval. Some people suggested it's because our prices are too low. But isn't that our responsibility to let more people afford trips by air?" said a sighing Wang as he wore a confused and helpless expression.

However, another dream may come true for him: taking the company public. Spring Airlines is now lining up for approval from the China Securities Regulatory Commission to undergo an initial public offering on the Shanghai stock exchange. If successful, Spring Airlines will become the only listed private airline on a China mainland bourse.

It has been years since the budget carrier sought an IPO in the A-share market. In late 2006, Citigroup proposed Spring Airlines' listing, estimating its market capitalization at 8 billion yuan. However, the global economic meltdown in late 2008 and ensuing capital market collapse halted the effort.

"I love to work here very much not only because Spring Airlines is a successful company and has never lost a penny throughout its life, but also because this is a workplace with open-minded people," said Jonathan Hutt, deputy general manager of strategy and international brand director at Spring Airlines, who has worked there for three years.

"People here can really learn stuff in this challenging place. This company is destined to have a great future," he added.

Zhang Xiaoxian in Shanghai contributed to this story.

wang_ying@chinadaily.com.cn

(China Daily USA 06/20/2013 page15)