Private In China Pt3: Springing to the Fore

Until very recently China has had only one airline that could claim to be a low-cost carrier. Despite initial disapproval from the CAAC Spring Airlines has managed to survive the tumultuous period since private airlines were allowed in 2005, which saw off most of the other private airlines, to become a major player in the Chinese market with huge potential for growth. Spring is now inspiring the majors to try their hand at LCCs, but remains far ahead of the field.

Based in Shanghai Spring received its first aircraft (an A320) on July 12, 2005 and commenced operations six days later. Spring is owned by the Spring International Travel Service, which in turn is owned by Wang Zhenhua - a local businessman from Shanghai. The airline sells tickets only through its website avoiding the extra acosts of using travel agents which are still a popular sales mechanism in China. In addition the airline has been protected from many of the issues other start-ups faced as it gains a lot of traffic by working directly with Spring Tours a sister company. They can provide up to 80% of the traffic and this has helped the airline claim an industry leading load factor.

---

Even so Spring itself has not adopted the full low-cost model. Domestically its prices can be as high as full service competitors and fares include checked luggage. This is more a reflection of strong demand and bureaucratic red tape which prohibits the airline from operating as it truly wishes. Access to trunk routes like Beijing-Shanghai has for example been very limited whilst the airline cannot fly night flights to assist in increasing aircraft utilisation. Making up for this the airline has a strong customer service and social media presence. On international services, which began in 2010, the airline has been able to be more flexible and operate closer to low-cost principles.

Growth has been strong especially in recent years. In 2008 2.9 million passengers were carried and this had almost doubled by 2010 to 5.9 million and in 2012 to 9.1 million. This growth has not come at the expense of profit and in 2010 a net profit of 470 million RMB was posted. By 2010 the fleet consisted of 22 A320s. By March 2013 this had grown to 35 A320s and early in 2015 the 50th example was accepted. By 2013 Spring represented the 12th largest Chinese airline but it was growing at a much faster rate than its competitors. The over 20% annual growth since 2011 is almost three times that of the rest of the Chinese market.

Spring has also followed an aggressive expansion policy in Hong Kong where it had seven routes by the end of 2012. Even more extreme it has created a joint venture Japanese subsidiary (of which it has a 33% share) which after delays finally began operations in August 2014 operating 737s from its Tokyo Narita base.

---

The success of Spring has not gone unnoticed by the CAAC which is belatedly coming around to the idea of low-cost airlines. In 2013 they even investigated the airline and produced a glowing report of its economics. Quoting CAPA:

"Spring’s net margin was 41% compared to an industry average of 12%, Spring had a load factor of 94% compared to an industry average of 76%, a selling expense of RMB0.08 per ASK compared to an industry average of RMB0.41, maintenance expense of RMB0.13 compared to an industry average of RMB0.25, management cost per ASK of RMB0.11 compared to an industry average of RMB0.25, utilisation rate of 11.4 hours compared to China’s average A320 utilisation rate of 9.2 hours, and 95 employees per aircraft compared to the industry average of 122."

It seems that if the shackles are removed then Spring would be able to grow to become one of China's largest airlines but even in its current guise it has a bright future ahead of it.