Boss" successful late take-off

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Spring Airlines had a seat-kilometer utilization of up to 95 percent last year, in contrast with the industry average of between 79 and 80 percent. Provided To China Daily

To keep prices low, company cuts its cloth, and then clothes butlers and maids, and it seems to be working

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 China’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,” says Wang Zhenghua, founder and chairman of Spring Airlines.

Wang, 70, 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 says.

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 successful tourism agency. But he was not satisfied resting on his laurels.

After gaining 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 to afford to fly.

Although conventional wisdom in the domestic aviation market says no company makes a profit in its first three to four years, 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.

Wang’s ambition is to emulate the huge success of the world’s first budget carrier, Southwest Airlines. The Shanghai-based carrier now has a fleet of 36, 14 of which are owned by the company. It has international flights to Cambodia, Japan and Thailand.

“We plan to expand our fleet size to 60 by 2015. That’s many more each year,” Wang says.

His aggressive expansion is backed by the carrier’s much-higher-than-average seat-kilometer utilization, a key indicator of a carrier’s operating efficiency.

Public information shows that even during the poor market in 2012, Spring Airlines maintained seat-km utilization of up to 95 percent, in 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,” says 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 says.

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

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

“I welcome China Eastern and its partner onboard,” says Wang, expressing calmness in the face of competition.

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

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

Wang is not short of solutions to fend off competition. 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,” says Spring Airlines spokesman Zhang Wu’an.

According to the spokesman, the clothes are designed in accordance with the tastes of young people and are more striking 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 adds.

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

“I have dreamed of selling cars on planes ever since the establishment of Spring Airlines,” says Wang, adding that the decision is based on the airline’s special characteristics.

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, leaving them with time for other activities. They therefore have time to advertise goods.

Eighty percent of the company’s more than 10 million passengers a year book tickets online, wang says. 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,” adds Wang.

Wang says he has other dreams. “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.”

Unfortunately for Spring Airlines, the company’s application to begin flights to Taiwan has been rejected by the Civil Aviation Administration of China for unspecified reasons.

“We started to apply every year since 2007 but have always been rejected. Some people suggested it’s because our prices are too low. But isn’t our job to make flying affordable to more people?”

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 for an initial public offering on the Shanghai stock exchange. If successful, Spring Airlines will become the only listed private airline on a Chinese 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,” says 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.”

Zhang Xiaoxian in Shanghai contributed to this story.

wang_ying@chinadaily.com.cn

(China Daily Africa Weekly 06/28/2013 page22)

Boss" successful late take-off