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Formed in 2004 and started operations in 2005. Domestic, passenger, jet airplane services.
2550 Hong Qiao Road
Hongqiao International Airport
020035 Shanghai (Shanghai), China
China (People's Republic of China) was established in 1949, it covers an area of 9,560,980 sq km, its population is 1,265 million, its capital city is Beijing, and its official language is Chinese.
China is a country in East Asia, the world's 3rd largest country by area (after Russia and Canada) and the largest by population. It is bordered on the north by the Republic of Mongolia and Russia, on the northeast by Russia and North Korea, on the east by the Yellow Sea and the East China Sea, on the south by the South China Sea, Vietnam, Laos, Myanmar (formerly Burma), India, Bhutan, and Nepal, on the west by Pakistan, Afghanistan, and Tajikistan, and on the northwest by Kyrgyzstan and Kazakhstan. China includes >3,400 offshore islands. The total area of China is 9,571,300 sq km/3,695,500 sq mi, not including Hong Kong, Macau, and land under the control of the Republic of China on Taiwan. The capital of China is Beijing; the country's most populous urban center is Shanghai.
June 2005: 1 + 2 orders A320-214 (B-6250), ex-Lotus Air (LOU).
July 2005: Singapore Technologies Aerospace, ST Aero Supplies has a $21 Million, 5-year complete component support contract with Spring Airlines (CQH) for its fleet of up to 15 A320's on a maintenance-by-the-hour basis. Spring Airlines (CQH) is owned by the largest travel agency in China, Shanghai Spring International Travel Service, and plans to launch service this year with 3 A320's.
Launches operations, Shanghai to Yantai, Nanchang, and Mianyang.
Spring Airlines (CQH) is a subsidiary of Spring International Travel Service.
(GECAS) (GEF) announced that it is leasing 3 A320 narrow body airplanes to Spring Air (CQH), a new low-cost carrier (LCC) based in Shanghai. 2 of the airplanes were formerly leased to other carriers. The 3rd is managed by (GECAS) (GEF) on behalf of another party.
"The demand for air travel in China should enable low-cost carriers (LCC)s like Spring Air (CQH) to prosper, and we are thrilled to be participating in (CQH)’s launch and future growth," said Norman Liu (GEF) Executive VP of Commercial Operations.
3 A320-200's (1372, B-2650), (GEF) leased.
October 2005: A320-214 (879), ex-Iberworld (IBW), (GEF) leased.
November 2005: Spring Airlines (CQH) will inaugurate nonstop service from Beijing to Sanya. (CQH) will operate a daily flight using the A320.
A319-112 (1263), (GEF) leased. A320-214 (1286), (GEF) leased.
February 2006: Chinese domestic airlines flew a record 138 million passengers in 2005, a rise of +15% over 2004 and double the number of 2000. The figure is expected to double again in the next 5 years according to Gao Geng, the Vice Minister of the General Administration of Civil Aviation in China. Cargo and airmail throughput rose +14% to 3.04 million tons in 2005 and also is expected to double in the next 5 years. However, profit margins will remain tight within the sector. He noted revenues in the sector had grown to CNY170 billion/$21.09 billion at the end of 2005, but profits in the past 5 years had amounted to only +CNY10 billion.
November 2006: A320-214 (2939, B-6301), (GEF) leased with new livery - see photo.
January 2007: A320-214 (3014, B-6309), (GEF) leased.
April 2007: China's airlines maintained their rapid growth rate in the 1st quarter, enjoying a +15.9% year-over-year rise in passengers to 40.9 million and a +13.3% gain in freight to 858,000 tonnes, according to (CAAC) statistics recently released. International numbers lifted significantly. International passengers climbed +23.9% to 3.8 million and freight rose +25.1% to 238,000 tonnes. (CAAC) attributed the improvement to growth in both imports and exports as well as airlines' capacity increases. In 2005, international cargo and passenger traffic rose +13.7% and +9.5% respectively, which compared to +19.5% cargo and +23.7% passenger growth for foreign carriers operating in China. Last year, the scenario reversed as China's airlines grew +15.5% and +19.5%, respectively, outpacing foreign airline cargo growth of +13.1% and a passenger increase of +7.8%.
In this year's 1st quarter, Chinese carriers' domestic passengers rose +15.1% to 37.1 million and cargo was up +9.4% to 620,000 tonnes. Due to fierce competition and falling capacity, airlines struggled on routes to Hong Kong and Macau. Passengers increased just +3.8% year-over-year to 1.3 million, while cargo plunged -11.9% to 37,000 tonnes. Privately held Spring Airlines (CQH) reported the highest 1st-quarter load factor with 94.5% LF.
(CQH) is a Shanghai-based carrier providing low-fare, jet airplane services to major Chinese cities.
Parent organization/shareholders: Spring International Travel Service (100%).
(IATA) Code: 9C - 089. (ICAO) Code: CQH (Callsign - AIR SPRING).
Main Base: Shanghai Hongqiao International Airport (SHA).
Domestic, scheduled destinations: Guilin; Haikou; Kunming; Nanchang; Sanya; Shanghai; Tianjin; Xiamen; & Yantai.
May 2007: China's new privately run Low Cost Carriers (LCC)s are looking to strategic investors as a method of raising capital, as it is becoming increasingly difficult to access traditional sources of bank lending, owing to the airlines' less-than-stellar financial performance. The Juneyao (JYA) Group announced that its Juneyao Airlines (JYA) subsidiary is seeking a strategic investor to aid in (JYA)'s long-term development. The announcement was made after Juneyao (JYA) said (JYA) was profitable in April and expects to post a full-year profit as well. (JYA) (CEO) Huang Hui said that "the right candidate" should be an investment bank with ample experience in the air transport industry to aid both domestic and future international expansion.
Earlier this year, Shanghai-based Spring Airlines (CQH) revealed its intent to seek a financial investor, when it posted a 2006 net profit of +CNY20 million/+$2.6 million on revenue >CNY500 million. Interestingly, in 2004 (CQH) rejected a proposal by Singapore Airlines (SIA) to acquire a 40% stake. (CQH) spokesperson Zhang Lei told "Finance Magazine" that (CQH) has talked with Merrill Lynch, Goldman Sachs and Citigroup, but no deal has been reached. He noted that while the (LCC) is seeking new investment, it is not interested in selling a majority stake. Insiders speculate it will have to raise at least CNY3 billion to support last October's order for 10 A320s.
The desire to attract investment, without sacrificing control, played out in the failed deal between Okay Airways (OKA) and Korean Air (KAL). In August 2005, (OKA) signed a letter of intent (LOI) with (KAL) under which (KAL) and another Korean company were to have acquired 49% of the airline, but both sides walked away over the issue of control. "Korean Air (KAL) wants to assume the presidency and take up equal seats on the board with us, which we can't accept. Even if they don't have controlling stake, conflicts will still arise," Okay (OKA) Chairman Liu Jieyin explained.
May 2007: While several Chinese low-cost carriers (LCC)s have struggled, newcomers East Star Airlines (ESR) and Spring Airlines (CQH) have started strong.
East Star (ESR) reported net earnings of +CNY11.4 million/+$1.5 million on CNY281 million in revenue in its 1st year of operation, while Spring (CQH) posted a +CNY30 million profit in its recently completed 2nd year.
Industry analysts attributed the pair's success to an "air travel plus tourism" operating model (both launched travel agencies designed to attract passengers). Recently, (ESR), which operates 3 A319s at an average 83.1% LF, applied to the (CAAC) to fly internationally. "We plan to open new routes to Hong Kong and Macau, and some international routes to Southeast Asia as we have travel branches in these destinations, so we will have no problem attracting passengers," Managing Director Zhou Yongqian said. (ESR) intends eventually to list on an overseas stock market, he added.
Generally speaking, China's (LCC)s are having difficulty building up steam. A dearth of attractive slots and difficulties in acquiring new airplanes (orders must go through the government) and finding pilots (FC) are among the most significant hurdles cited by industry analysts. The average (LCC) fleet size is 3 to 4 airplanes.
In China, approximately 70% of commercial traffic is centralized in large cities like Beijing, Shanghai and Guangzhou, where airports are nearly saturated and unavailable to newer (LCC)s. In addition, a shortage of 8,000 to 10,000 pilots (FC) is forecast in the next 5 years, a concern for carriers that have trouble competing with the majors for new hires.
Despite those problems, Spring Airlines (CQH) Chairman Wang Zhenghua is confident (LCC)s have a place in China's future. "Our target is to make more Chinese people have a chance to enjoy air travel," he said.
A320-214 (1686), ex-SkyService (SKB), Boullioun (BOU) leased.
June 2007: As one of the few profitable Chinese Low Cost Carriers (LCC)s, Spring Airlines (CQH) maintained impressive growth during the 1st half its fiscal year, posting a +85% rise in net profit for the 6 months ended April 30, and a +27% year-over-year increase in operating revenue to CNY430 million/$56.4 million. The profit figure has not been released. As the only Chinese airline that opts to sell tickets directly from its own website, rather than through the Chinese Travelsky Global Distribution System (GDS) and ticket agents, Spring (CQH) enjoyed a +235% lift in direct sales revenue during the fiscal semester to CNY230 million.
(CQH) also said it transported 770,210 passengers in the 1st 4 months of 2007. It posted a +CNY30 million profit in its previous full fiscal year.
6 orders A320s.
July 2007: Spring Airlines (CQH) plans a stock listing to finance the acquisition of 6 A320s in 2009, President Wang Zenghua announced. (CQH) also plans to reach a deal with an international investment bank as a strategic investor next year, preferring an institution over another airline as it holds fast to its "go it alone" strategy. Wang said Citibank is (CQH)'s 1st choice and the parties already are in discussions. He said (CQH)'s biggest headache at present is a shortage of pilots (FC). It expects to expand its fleet to 25 to 30 airplanes and increase passenger boardings to 10 million by 2010. It currently operates 7 A320 family airplanes and transported 770,210 passengers in the 1st 4 months of 2007.
A (CQH) spokesperson said the Low Cost Carrier (LCC), which flies A320s, will "definitely buy more airplanes as airplane lease expenses are much higher than airplanes purchased from a long-term perspective." It currently has 7 airplanes on lease. Spring (CQH) Chairman Wang Zhenghua noted the company plans a stock listing to finance the acquisition of 6 A320s in 2009.
A320-214 (978, B-6328), ex-AtlasJet International (ABE), Aviation Capital (CGP) leased.
August 2007: China's Low Cost Carrier (LCC)s, which are facing a lack of access to trunk routes, restriction on the introduction of new airplanes and pilot (FC) shortages, are experiencing mixed results in their efforts to attract the foreign investors they need to move forward with listing plans. Spring Airlines (CQH) has met with success, sealing a deal with Citibank under which the latter will serve as strategic investor and financial adviser, Spring (CQH) spokesperson, Zhang Lei revealed. (CQH) intends to list either in Shanghai or Hong Kong in 2009.
East Star Airlines (ESR), which is profitable, has presented its listing plan to 6 international investment banks, including JP Morgan and Merrill Lynch, and +5 additional foreign banks. However, Banque de L'IndoChine graded East Star (ESR) as a "3rd class" carrier, behind "1st class" Air China (BEJ), China Southern Airlines (GUN), and China Eastern Airlines (CEA), and "2nd class" carriers like Shanghai Airlines (SHA), Shenzhen Airlines (SHZ), and Sichuan Airlines. It said it would consider an approximately $100 million investment if and when (ESR) is upgraded to "2nd class."
Junyao Airlines (JYA) (CEO) Huang Hui revealed (JYA) hopes to list by next summer's Olympic Games in Beijing and is working on an initial private placement scheduled to be concluded by year end.
After some initial difficulty, Chinese (LCC)s are making progress with securing new investors and subsequent (IPO)s. Hong Kong-based long-haul carrier Oasis Hong Kong Airlines (OHK) plans to sell a 20% stake to a new investor by October, Chairman Li Zhuomin confirmed to the local "Ta Kung Pao" newspaper. In addition, privately run Shenzhen Airlines (SHZ) revealed its plan to sell a 20% share worth approximately $200 million to a single investor, with Deutsche Bank and several hedge funds, including Marathon and Och-Ziff, among the widely reported candidates. Shenzhen (SHZ) has refused to reveal where it will list, but industry insiders have indicated Shanghai is the likely choice.
Oasis (OHK) and Shenzhen (SHZ) are among several newer entrants who have pursued strategic investors as access to traditional funding has become more problematic. While some have had difficulty, Li told "Ta Kung Pao" that many international investment banks and financial organizations have expressed an interest since Oasis (OHK)'s inaugural flight to London last fall. (OHK) currently is negotiating with interested parties and a decision is expected in October. Earlier this year, it said it expected to raise as much as HK$10 billion/$1.28 billion with an initial share sale in 2009.
Among other startups, Juneyao Airlines (JYA) is preparing an overseas private placement of 20% to 25% and expects to raise approximately $150 million in an (IPO). Last month, (CQH) confirmed it reached a deal with Citibank. It plans to list on a foreign exchange in 2009.
Industry analysts have noted that the timing is right for Chinese (LCC)s to introduce new investors and plan (IPO)s, as the interest of foreign investors has been raised by the industry's improved performance in the 1st semester and expectations of continuing appreciation of the yuan.
A (CQH) spokesperson said China's pilot (FC) shortage is the critical handicap for (LCC)s. (CAAC) dictated that 5 captains (FC) and 5 copilots (FC) must accompany the addition of each airplane. Spring (CQH) operates 8 planes and employs 200 pilots (FC) plus trainees.
September 2007: The (CAAC) plans to open some secondary airports near larger domestic markets and relax its control of airfare and route licensing in an attempt to boost the growth of Chinese Low Cost Carriers (LCC)s. As 1 of the country's few profitable (LCC)s, (CQH) welcomed the regulator's move. "Currently our airports cost, accounts for 10% of our total operating expenses. If the (CAAC) can open some secondary airports for us, it will be conducive to our cost [control]," spokesperson Zhang Lei said. Industry analysts pointed out that by transferring operations to secondary airports, as is common among (LCC) counterparts in Europe and North America, the (CAAC) also will help alleviate operational pressures at hubs suffering from heavy congestion, resulting from industry growth, that has outpaced infrastructure development. (CAAC) Aviation Minister Yang Yuanyuan noted that Chinese (LCC)s, most of which still are in an "initial development phase," are facing hurdles imposed by current regulatory policies. The regulator appears committed to gradual reform, including an easing of the policy that forbids carriers from selling tickets at a >55% discount rate. "Our goal is to make ticket pricing be decided by market forces," Yang said. He also said a new traffic rights policy is scheduled for implementation in 2010, that will allow airlines to operate specific routes without a licensing grant.
October 2007: Chinese carriers are beginning to follow the internationally common practice of recruiting privately trained pilots (FC) in an effort to make up for a pilot (FC) shortfall that (CAAC) Vice Minister Gao Hongfeng said last month will reach 2,000 over the next 2 years. The country's commercial aviation fleet numbered 1,067 airplanes at the end of July, and is expected to rise to 1,250 by 2010. Chinese carriers traditionally cover training expenses for their pilots (FC), which normally runs several million yuan for each individual. As a result, pilots (FC) rarely are able to transfer to competing carriers, as the current employer often asks for heavy compensation from a potential new employer. In addition, the rising number of new entrants is exacerbating the problem. Gao said 39 privately run airlines have submitted applications to the (CAAC) since 2004, and 17 have been approved so far. China Southern Airlines (GUN) started the trend in May, announcing its plans to recruit 100 privately trained pilots (FC). Sichuan Airlines (SIC) followed 3 months later, hiring 50 private pilots (FC). This month (CQH), East Star Airlines (ESR) and United Eagle Air (UEG) disclosed their interest in recruiting such pilots (FC) in the near future. Shenzhen Airlines (SHZ) has taken it 1 step further, establishing Kunpeng International Flight School (KIFS) with a CNY30 million investment. (KIFS) will award privately trained pilots an (ICAO)-recognized license on their graduation, and currently has 120 students. That number is expected to leap to 480 next year. Industry analysts have pointed out that privately trained pilots (FC)'s ability to seek new jobs, when their working contracts expire, or are terminated, will help the market mature and constitute a significant step toward solving the shortage.
November 2007: With market reforms taking hold in China's commercial aviation industry, the (CAAC) plans to relax its control over Chinese carriers' domestic route networks and allow them to launch new services freely by 2010, according to Minister Yang Yuanyuan. (CAAC) is committed to cutting the number of cities for which new flights still must be approved. "Our target is to reduce this number to zero by 2010, when all the domestic routes should be open to Chinese carriers without formal approval from the (CAAC)," Yang said. China Everbright Securities, aviation analyst Li Jun pointed out that the (CAAC)'s new plan will benefit Low Cost Carriers (LCC)s, which collectively suffer from a lack of access to popular routes and cities like Beijing, Shanghai and Guangzhou, owing to a "1st-come, 1st-served" policy, as well as the absence of a regulatory mechanism that requires under-performing carriers to surrender routes. But Li warned that airlines will continue to face hurdles to entry, due to severe slot shortages at the aforementioned cities' airports. Because of saturation of air traffic over Beijing, the (CAAC) began cutting 48 domestic flights during peak hours in mid-August.
(CQH) spokesperson, Zhang Lei agreed with Li's view, saying, "Even if the (CAAC) loosens its grip on the approval of domestic routes in 2010, it will still remain difficult for us to open new routes to Beijing, Guangzhou and popular domestic cities, owing to the slot shortage in these cities' airports, where sometimes we have to give up some of our current slots in exchange for new slots."
(CQH) plans to slow its development owing to a pilot (FC) shortage, though (CQH) still expects to earn a net profit of +CNY80 million/+$10.8 million in 2007, according to President Wang Zhenghua. Based on its revised plan, (CQH) will maintain its current fleet of 8 A320s until the 2nd half of next year, when it will introduce +4 more. It originally planned to expand its fleet to 10 airplanes in 2007 and 30 in 2009.
Spokesperson Zhang Lei explained, "We are suffering from a pilot (FC) shortage now. That's why we are decelerating fleet expansion. As domestic carriers' fleets are growing so rapidly, pilots (FC) have become scarce. So if we introduced more airplanes now, the pilot (FC) shortage will become more severe for us."
In addition, Wang noted that (CQH) will postpone its plan of going listed in 2009, as it currently is not pressed for money. "Our cash flow is quite smooth now. We have already successfully covered pilot (FC) expenses with CNY200 million and paid CNY100 million [toward airplane leases] this year, without taking any loans from banks, so we don't have to rush in going listed," he said. Currently, (CQH)'s passenger load factor is 95% LF, which ranks 1st among domestic carriers.
In contrast, Juneyao Airlines (JYA) said it is accelerating preparations for going listed next year. Regarding the pilot (FC) shortage, spokesperson Wang Zhong said Juneyao (JYA) will hire foreign pilots (FC) as well as train its own in domestic flight schools to accommodate fleet expansion.
January 2008: Juneyao Airlines (JYA) sold a 25% stake to a foreign private fund for $100 million, a source at (JYA) said, taking the Low Cost Carrier (LCC) 1 step closer toward its goal of listing on an overseas market by early 2009. "It took us about 6 months to conclude our negotiation with this private fund for the stake sale deal, which will provide strong financial support to our fleet expansion," the source said, refusing to reveal the name of the buyer. (JYA) plans to introduce 6 airplanes this year, and increase its fleet to 30 by 2010. It currently operates 2 A319s and 3 A320s.
One of China's few profitable (LCC)s, Juneyao (JYA) reported net earnings of +CNY18 million/+$2.5 million and a passenger load factor of >80% LF in the 1st 8 months of 2007. (CEO) Huang Hui noted that (JYA) is expected to post full-year net income of +CNY25 million.
It has become increasingly popular for Chinese (LCC)s to seek foreign investors to fund growth. (CQH), another Shanghai-based (LCC), is close to selling a <20% stake to a foreign investor. It has hired Citibank as its financial adviser and plans to go listed in 2009.
East Star Airlines (ESR), the 1st Chinese (LCC) to fly outside China's mainland by launching services to Hong Kong and Macau from Wuhan last November, also sealed a strategic cooperative agreement with Citibank for capital financing and Initial Public Offering (IPO) consultation. It is negotiating with some private funds for going listed in overseas markets.
Industry analysts noted that Chinese (LCC)s have begun to show their competitive edge in the domestic airline industry, but still face significant disadvantages compared to their much larger state-owned rivals.
(CQH) signed a Memo of Understanding (MOU) to purchase (CFM56-5B)s for 10 A320s in an order valued at approximately $170 million. Delivery is slated for March 2009. (CQH) also agreed to lease +12 additional (CFM56-5B)-powered A320s to be delivered between 2009 and 2012.
March 2008: Spring Airlines (CQH) posted a record net profit of +CNY70 million/+$10.2 million in 2007, >2x the previous year's result. Operating revenue rose to CNY1.23 billion, but industry analysts credited effective cost control for the profit result. According to (CAAC) statistics, (CQH)'s operating expenses were -18% lower than the domestic average. (CQH) is 1 of the few profitable Chinese Low Cost Carriers (LCC)s and operates a single fleet type (A320) with an all-economy (Y) cabin configuration. In order to reduce costs, it developed independent sales and departure systems that boosted e-commerce revenue to CNY850 million (69% of its 2007 operating revenue) and saved around -CNY40 million in commissions to ticket agents. Passenger boardings numbered 2.4 million last year, and load factor was 95% LF.
(CQH) operates 8 A320s to >20 domestic destinations. A spokesperson said the fleet will increase by 3 to 4 units this year. It originally had planned to add +10 airplanes in 2008, and boost the fleet to 30 in 2009, but "due to a severe pilot (FC) shortage, we have to decrease our fleet expansion. In addition, the (CAAC) wants us to slow down for this summer's Olympic Games and the potential safety issues associated with saturated skies."
Hainan Airlines (HNA) is in crisis, following the appeal of 6 pilots (FC) to the Haikou arbitration committee to have their labor contracts terminated. The 6 resigned at the end of last year, bringing to 20 the number of (HNA) pilots (FC) who have walked out since 2006. (HNA) has accepted none of the resignations and their disputes remain unresolved. Luo Zulin, 1 of the 6 who asked for arbitration, said the resignations were a result of "frequent overtime" and "long delays in getting their salary." (HNA) is insisting on the validity the contracts and denied Luo's accusation regarding pay. It said that if the committee ruled in the pilots (FC)'s favor, it would request several million yuan in compensation from them and the return of their licenses.
Air China (BEJ), China Eastern Airlines (CEA), Xiamen Airlines (XIA), and Xinhua Airlines (XIH) also have faced labor disputes with resigned pilots (FC), largely because Chinese carriers traditionally cover training expenses that can amount to millions of yuan per pilot (FC). There is considerable reluctance to allow them to transfer to competing carriers.
Under a Pilots Flow Management Proposal policy implemented by (CAAC) in 2005, "the potential new employer" of these resigned pilots (FC) must attain the permission of the "old employer" before hiring, then pay compensation of CNY700,000 to CNY2.1 million/$98,300 to $294,800. According to (CAAC) statistics, China's commercial aviation fleet numbered 1,099 airplanes last September 30 and is expected to rise to 1,250 by 2010, leading to an estimated shortfall of -200 pilots (FC) annually.
In order to make up the severe shortage, carriers are beginning to follow the internationally common practice of recruiting privately trained pilots (FC). China Southern Airlines (GUN) started the trend last May, announcing its plans to recruit 100 such pilots (FC). Sichuan Airlines (SIC) followed 3 months later, hiring 50 private pilots (FC). Spring Airlines (CQH), East Star Airlines (ESR), and United Eagle Airlines (UEG) have disclosed their interest in recruiting such pilots (FC).
May 2008: Spring Airlines (CQH) plans to order 30 A320s and expand its fleet to 100 airplanes by 2015, according to Chairman Wang Zhenghua. Wang said (CQH) is awaiting regulatory approval for the order. (CQH) currently operates 8 A320s on a network spanning >30 Chinese cities. It expects its fleet to number 30 by 2010, and increase to 100 by 2015, at which point half the fleet will be leased, and half owned.
"Owing to our fleet expansion plan, our financial pressure is quite heavy and we hope to solve our financing problems by getting listed in Hong Kong," Wang added. (CQH) has hired Citibank as its financial adviser and expects to raise CNY1 billion/$142.9 million through an Initial Public Offering (IPO), now expected to occur in December 2009. "Apparently (CQH) wants to expand its fleet by going public. But alleviating pressure, imposed by surging oil prices , and a severe pilot (FC) shortage, is what (CQH) really needs to figure out," Industrial Securities Aviation Analyst, Xia Fulu warned. Fuel costs account for 40% to 41% of (CQH)'s total operating expenses.
The carrier transported 689,000 passengers in the 1st quarter, with an average load factor of 94.3% LF. Spokesperson Zhang Lei said that it earned a 1st-quarter profit, but refused to specify the exact figure. He noted operating revenue was CNY379 million.
August 2008: Spring Airlines (CQH) is expecting 2008 earnings to fall short of the +CNY70 million/+$10.2 million profit reported last year owing to the difficult operating environment. Speaking to "China Business News," Spring (CQH) Chairman, Wang Zhenghua said (CQH) posted "a little" profit in the first half. He said fuel costs have jumped to 50% of Spring (CQH)'s total expenses, up from 30% to 40%. "In addition, labor costs are rising," he said. The airline also is feeling the pressure of declining domestic demand, which was dampened by the earthquakes and snowstorms that hit the country hard this year. "Even in July and August, which normally is the traffic peak period, the domestic demand still fell by a big margin compared to the same period of last year" Wang noted. (CQH) cut fares by -20% in an effort to boost revenue even though its ticket prices already were around -36% lower than those of the state-owned carriers. The discount lifted it to an industry-high 95% LF average load factor.
Meantime, (CQH) is planning to charge for all checked luggage and carry-on bags weighing >5 kg. If enacted, the policy will be implemented following the conclusion of the Beijing Olympics. It also will impose a fee on passengers checking in with (CQH) employees at the airport. Wang said that fee "is mainly aimed at encouraging passengers to use self-serve check-in so as to reduce our labor costs." (CQH) announced plans this spring to order 30 A320s.
(CQH) employs around 900 people and serves 20 domestic routes with 45 daily departures. Currently, >70% of its customers purchase their air tickets online, while the rest obtain their tickets via travel agents.
There is a severe pilot (FC) shortage that has become a widespread and thorny problem for the entire industry here. The total number of airplanes introduced by Chinese private airlines is only about 40, but Chinese carriers collectively have introduced about 400 in the same time frame, which is the real reason that domestic carriers are suffering from a pilot (FC) shortage. Rapid capacity growth should take the full blame. In order to alleviate this headache, (CQH) plans to recruit and train 100 to 200 ab initio pilots (FC) every year. Wang Zhenghua Chairman expects the shortage will be resolved in 4 to 5 years and notes it would be impractical for (CQH) to hire foreign pilots (FC) now, as very few of his employees can speak English. He believes the pilot (FC) shortage is the biggest obstacle toward meeting the goal of operating 100 airplanes by 2015. "If we can make it at last, the pilot (FC) shortage will be the only culprit.
September 2008: Spring Airlines (CQH) plans to establish its 2nd base at Zhengzhou, which opened a budget terminal in March. (CQH) originally had targed Sanya, a popular tourist destination in Hainan Province, for the base, but opted out "as it is short of a budget terminal," Chairman Wang Zhenghua said. It has chosen the capital of Henan Province instead. The city boasts a population of >7 million at the prefectural level.
A (CQH) spokesperson noted that (CQH)'s daily Shanghai - Zhengzhou service operated at an average 95% LF last year and was more profitable than expected. Today, it will add a 2nd daily flight. It will be the 1st domestic Low Cost Carrier (LCC) to move to Zhengzhou's budget terminal, from which it will launch service to Guangzhou, Shenzhen, Kunming, and Haikou by early next year. Wang said he is targeting 40 routes from Zhengzhou in the next 3 to 5 years, which he joked may be "very crazy." But there is a method to that madness. "The airfare on (CQH)'s routes from Zhengzhou is expected to be -35% less than that charged by the bigger state-owned carriers," he said. It will offer promotional fares of CNY99 and eventually plans to upgrade its systems at the airport, in order to combine an e-ticket receipt and boarding pass onto 1 piece of paper, which Want said would "further save costs and thus reduce airfare."
Air China (BEJ) and China Southern Airlines (GUN) both endured double-digit year-over-year traffic declines in August, and while some of the drop can be attributed to heightened security related to the Beijing Olympics, slowing domestic economic growth likely portends a poor full-year 2008 traffic and financial performance for Chinese carriers. (BEJ)'s overall passenger traffic plummeted -16.3% year-over-year in August to 5.26 billion (RPK)s on a capacity decrease of -0.9% to 7.4 billion (ASK)s. Its load factor of 71.1% LF was down by -13 points. Passenger numbers dropped -16.6% to 2.77 million, while cargo volume fell -4.1%. Similarly, China Southern (GUN) suffered a sharp decline in August, as passenger numbers plunged -16.2% to 4.99 million, with load factor at 71.2% LF, down -8.7 points from last year and a new low for 2008.
Spring Airlines (CQH) Chairman Wang Zhenghua said he is optimistic that domestic demand will rebound in September and October, a view that is not widely shared. But even he commented that this month and next provide the only opportunity for carriers to improve their domestic traffic performance this year.
China Eastern Airlines (CEA) has not yet released its traffic statistics for August, but in contrast to Wang, (CEA) Board Secretary Luo Zhuping expressed pessimism regarding the remainder of 2008. "The biggest problem we are facing now is the continuous decline of domestic demand. The winter is coming and uncertain economic prospects make it difficult for domestic demand to rebound in the short term."
Shenyin Wanguo Securities Aviation Analyst, Li Shurong agreed with Luo, pointing out that "high domestic fuel prices show little possibility [of falling] for the time being and the slowdown of yuan appreciation, and continuous decline of domestic demand are expected to exert a negative impact on Chinese carriers." China International Capital Corporation predicted that "excepting Air China (BEJ), most [of China's] carriers [including] China Southern (GUN), China Eastern (CEA), Hainan Airlines (HNA), and Shanghai Airlines (SHA) will post a full-year net loss in 2008."
October 2008: (CQH) is to begin new non-stops from Shanghai to Fuzhou, the capital of Fujian province across from Taiwan.
December 2008: China's privately run carriers are struggling in the current environment. Spring Airlines (CQH), the most profitable domestic Low Cost Carrier (LCC), announced that its 2008 profit is expected to drop -70% from the +CNY70 million/+$10.2 million earned last year. (CQH) plans to charge for checked luggage to increase its operating revenue.
Chinese carriers have had mixed reactions to (CAAC)'s recent call to "cancel or delay" 2009 airplane orders as a part of an effort to lift the domestic airline industry out of its current difficulties.
(CQH) also is sticking to its schedule and has hired >40 pilots (FC) in the past 4 months. It even hopes to purchase +2 more A320s canceled by other Chinese carriers, but Chairman Wang Zhenghua said that would require (CAAC) approval. (CQH) is expected to introduce 5 A320s in 2009.
January 2009: A320-214 (3747, B-6562), AerVenture leased.
February 2009: Shanghai-based Spring Airlines (CQH) and Juneyao Airlines (JYA) stood out among China's struggling privately held airlines and reported a profitable 2008.
Spring (CQH) posted a +CNY21 million/+$3.1 million net profit last year, down -70% from the >+CNY70 million earned in 2007. It credited the result partly to a CNY20 million civil aviation infrastructure payment imposed in the 2nd half of last year. (CQH)'s operating revenue climbed +32% year-over-year to CNY1.62 billion as it transported 2.9 million passengers, up +26% with an average load factor of 93.3% LF.
Juneyao Airlines (JYA) posted a +CNY11.5 million net profit in 2008. It carried 1.4 million passengers.
In contrast to (CQH) and (JYA), other privately run carriers are suffering from capital shortages and struggling to survive in the difficult operating environment. Unlike state-owned airlines, they are unable to secure financial aid from the government. Wuhan-based, East Star Airlines (ESR) and Chengdu-based, United Eagle Airlines (UEG) are unable to pay significant bills owed to certain airports, while Tianjin-based, Okay Airways (OKA) suffered a -CNY200 million net loss in 2008.
Industry analysts assert that most private airlines will have no other option but to merge with the bigger domestic carriers. United Eagle (UEG) is seeking strategic investors for a CNY100 million capital injection while East Star (ESR) has had initial discussions with Air China (BEJ) parent, China National Aviation Holding Company about a stake sale.
March 2009: The (CAAC) said it will disallow competition on 51 new domestic routes that Chinese airlines will add between March 29 and October 24. The (CAAC) said that each 1 of the new routes will be operated by only 1 Chinese carrier for 3 years. Industry analysts noted that the 51 routes are not particularly sought after and airlines would be reluctant to operate flights on them, absent the protection against competition. The (CAAC) said it is seeking to expand the domestic market in a weak economic environment in which domestic demand has been soft.
"It's quite risky to operate these routes as generally their market outlook is not very good, so [domestic carriers] have to make a big investment to breed and explore their market potential at 1st," Spring Airlines (CQH) spokesperson, Zhang Lei noted. But Zhang didn't rule out the possibility of earning profits on the routes as "the market is changing all the time and we can make proper capacity adjustments so as to take advantage of being the only operator for the 1st 3 years. Even if other carriers come in 3 years later, the original operator can still play a leading role."
A320-214 (3819, B-6561), delivery.
April 2009: Spring Airlines (CQH) expects to nearly double its net profit to +CNY40 million/+$5.8 million this year and is planning a rapid fleet expansion despite shrinking domestic demand and the global economic downturn. Launched in July 2005, (CQH) is 1 of the most profitable privately run carriers in China and reported net earnings of +CNY21 million last year. It maintained a load factor of 95% LF as it established travel agencies to attract passengers.
(CQH)'s fleet expansion will be anchored by its strong balance sheet. It recently took delivery of its 1st directly purchased A320 (its other 11 are leased). It placed an order for 6 A320s 2 years ago. The new airplane is expected to operate from Shanghai to western China. (CQH) launched service to Lanzhou, Urumqi, Zhangjiajie and Guiyang last month. "We plan to introduce +15 more A320s through purchase in the coming days," (CQH) (CEO) Zhang Xiuzhi said. (CQH) is negotiating with Airbus (EDS) on an order for +10 more A320s, according to Chairman Wang Zhenghua.
"We have sufficient financial support for our fleet expansion," Wang said. (CQH) intends to move forward with an initial public offering (IPO) instead of raising capital through a private placement or introduction of strategic investors.
(CQH)'s expansion is fueled by its international ambitions. Wang said it plans to open routes to Hong Kong and Macau and will apply for access to Japan, South Korea and certain Southeast Asia countries next year. It currently operates 26 domestic routes. Meantime, it plans to spend about CNY100 million to hire >30 pilots (FC).
(CQH) plans to order 30 to 50 airplanes from Airbus (EDS) despite the economic downturn, Chairman, Wang Zhenghua said. Wang noted that the fleet expansion plan still requires (CAAC) approval, which is not a given considering the regulator's stance that Chinese carriers should cancel or delay airplane orders. (CQH) currently operates 12 A320s on 26 domestic routes and plans to take delivery of +15 more in the next 3 years.
(CQH) is China's most profitable privately run carrier. It reported net income of +CNY20 million/+$2.9 million in 2008 and earned a profit of +CNY15.9 million in the 1st quarter of 2009. Wang said this month that it is aiming to achieve a +CNY40 million profit on operating revenue of CNY1.78 billion this year. It also plans to launch international service in 2009, with flights to Hong Kong and Macau planned before year end and applications for access to Japan, South Korea and several Southeast Asian countries set to be filed in 2010. The (CAC) approved (CQH)'s Hong Kong and Macau service.
Meantime, Wang called on Beijing to grant subsidies to any carriers flying internationally rather than spending money on capital injections to the major state-owned airlines. Chinese airlines have been suffering a collective loss on international operations. "China Eastern Airlines (CEA) and China Southern Airlines (GUN) have received a capital injection of +CNY7 billion and +CNY3 billion, respectively, but can this capital injection solve their fundamental problems? In fact, the government capital injection is ruining the balance in the market," Wang protested.
A320-214 (3591, B-6388), Macquarie AirFinance leased.
May 2009: Hit hard by competition from high-speed rail, Spring Airlines (CQH), the most profitable Chinese Low Cost Carrier (LCC), is abandoning plans to open a 2nd base in Zhengzhou to the north and shifting its attention south to Sanya in Hainan Province. "We have allocated 2 A320s to Sanya to operate on 10 new routes to Xi'an, Guiyang, Hangzhou, Jinan, Nanjing, Nanchang, Nanning, Tianjin, Wuhan and Zhengzhou. We intend to establish Sanya as our and domestic base, but it needs to be approved by the (CAAC)." (CQH) is expected to allocate +3 more A320s to Sanya by year end and increase its fleet to 30 A320s with 44 daily departures by 2015.
Zhengzhou was attractive because it boasts China's only (LCC) terminal, but Spring (CQH) changed its mind owing to the presence of high-speed rail, "which has exerted a big negative impact on our passenger load factor." Hainan, by contrast, "has rich tourism resources, which can guarantee high load factors as we have the support from our tourism agencies around the country." It was revealed that Sanya Fenghuang International plans to build a low-cost carrier (LCC) terminal for the carrier.
(CQH) cancelled its Shanghai - Zhengzhou service in March, but it is "still optimistic" about Zhenghzou and is considering adding frequencies.
Recovery of the domestic market helped (CQH) post a +CNY15.9 million/+$2.3 million 1st-quarter profit, up +40% from the year-ago period. But it is cautious about the remainder of the year due to the swine flu scare and an increase in domestic fuel prices. Beijing raised the price by +11.5% to CNY4,450 per ton.
Chinese airlines adopted a new pricing standard that effectively will raise fares by approximately +10%. On April 20, carriers began offering discounts on the base price of the ticket only versus the previous practice of discounting on the full rate comprising the base and floating prices. The new standard has upset many travelers in China, although many discounted fares remain available on airlines' websites. Both Air China (BEJ) and China Southern Airlines (GUN) denied the new standard was designed to raise fares, insisting that they are only intent on improving sales systems and plan to adhere to the national ticket policy enacted in 2004. The CAAC denied media reports suggesting there was collusion among major Chinese carriers.
Meantime, TravelSky Technology Ltd (eTerm), China's state-owned Information Technology (IT) solutions provider, upgraded carriers' sales systems in accordance with the new standard. TravelSky is the system used by nearly all Chinese airlines. Spring Airlines (CQH) is an exception and has developed its own system.
July 2009: Spring Airlines (CQH) is submitting plans for journeys
where passengers can opt to stand to save money. (CQH) 1st initiated the standing ticket idea earlier this year. (CQH) is now considering officially submitting it to the aviation regulator before the year is out. (CQH) has been trying to cope with surging passenger numbers and new flight routes, but only has 13 airplanes. (CQH)'s Zhang Wuan told China's "CCTV": "The process of plane making is really long. "We already ordered 14 new jets. But some of them will only be delivered next year. "And you have to wait for at least 5 years to lease a plane, and it is also very expensive." The standing jet could accommodate +40% more passengers compared to a traditional plane.
It could also help airlines cut -20% of their costs, while lowering airfares for consumers. Mr Wuan added: "It's just like bar stools. The safety belt is the most important thing. It will still be fastened around the waist. The airline would need government backing to go ahead with the plans. But (CQH) President Wang Zhenghua said that he was confident because the idea had been suggested by
China's Vice Premier Zhang Dejiang. "He suggested that, for a lower price, passengers should be able to get on a plane like catching a bus, with no seat, no luggage consignment, no food, no water, but very convenient," said Mr Zhenghua. He added that the company had consulted with Airbus (EDS), the company which built most of its aeroplanes, and had been told the proposals were safe.
Ryanair (RYR) (CEO) Michael O'Leary found himself in the headlines again after telling "Sky News" "We might take out the last 5 or 6 rows [of seats] and say to passengers, "Do you want to stand up? If you do, you can travel for free." O'Leary said he has asked Boeing (TBC) to look at converting or producing airplanes with "vertical seating" and asked, "Why is this any different to what happens on trains where you see thousands of people who cannot get a seat standing in the aisles?"
A spokesperson confirmed to "Agence France Presse" that (RYR) and (TBC) are in discussions "in relation to adapting the airplanes to allow people to travel in vertical seating." They "wouldn't be fully standing. They would have something like a stool to lean on or to sit on." The same spokesperson told the "Daily Mail," "It's really early days but we're looking at a +20% to +30% increase in passengers on commuter routes."
(RYR) has not yet sought approval from aviation authorities. It credited (CQH) for the idea. A (CQH) spokesperson reportedly told "China Central Television" that it plans to submit its plan to regulators this year.
August 2009: Spring Airlines (CQH) reported a half-year net profit of +CNY41.17 million/+$6 million, a threefold year-over-year improvement, on a +20% lift in revenue to CNY894 million. (CQH) credited "effective cost control" and a "high load factor" for the result. (CQH) said it saved about CNY28.41 million in fuel expenses for the 1st 6 months and maintained a load factor of 95% LF, +17.4% higher than the domestic airline industry average.
Looking ahead, (CQH) expects to earn net income of +CNY100 million for the full year. "The domestic market has been recovering in the 1st half of this year. It is a peak travel season from July to October, so we expect to enjoy a better performance in the 2nd half of this year," Chairman Wang Zhenghua said. (CQH) reported net income of +CNY21 million in 2008.
(CQH) plans to launch flights from Shanghai to Hong Kong, Macau, Taiwan, Japan, and South Korea by 2010. Wang revealed that (CQH) has been approved to operate the routes by the (CAAC) and said preparations are underway to start the services. It is in the midst of a rapid fleet expansion and he noted that it is scheduled to introduce 4 or 5 new A320s by next March or April pending (CAC) approval. (CQH) plans to operate 100 A320s by 2015, up from the current 13.
September 2009: Spring Airlines (CQH), the most successful Chinese Low Cost Carrier (LCC), plans to launch international service. It intends to operate to neighboring Asian countries in time for Shanghai's "Expo 2010" starting in May.
(CQH) plans to establish a base in Shenyang and signed an agreement with the municipal government detailing plans to build the city into an aviation hub for northeast Asia. (CQH) currently operates bases in Shanghai and Sanya in the south. A (CQH) spokesperson said last week that (CQH) plans to launch service to both provincial capitals and tourism destinations from Shenyang over the next few years, including destinations like Hangzhou, Nanjing, Chongqing, Xiamen, Qingdao, and Sanya. It also is considering opening international routes from Shenyang, which has a population of around 7 million. Shanghai currently is the only city it serves from the airport.
(CQH) Chairman Wang Zhenghua said he is confident that domestic demand will continue to expand. "The domestic market is recovering very well owing to Beijing's economic stimulation policies. I think it will be even better in the 2nd half than in the 1st half since the domestic economy and international trade are recovering," he said.
He also called on the (CAAC) to liberalize air services. "We hope new entrants [privately run carriers] can have access to some markets in a more fair way, such as the Beijing market and Shanghai market," he said. Based on the China Civil Aviation Domestic Routes Operation Regulation implemented by the (CAC), all air routes among the country's 20 busiest airports have to be approved by the regulator. Owing to "1st-come, 1st-served" policies and the lack of a mechanism requiring under-performing carriers to surrender routes, it is difficult for new entrants to gain approval and access to more popular and profitable routes. Despite these obstacles, Wang said he remains confident that private carriers have a "very bright future" in China.
October 2009: Spring Airlines (CQH) reported net income of +CNY140 million/+$20.5 million for the 1st 9 months of 2009, a better than fourfold increase over the +CNY30 million earned in the same period last year.
The result implies a bumper 3rd quarter, as (CQH) was +CNY41.2 million in the black through the 1st half. Chairman Wang Zhenghua had said he expected a +CNY100 million profit for the full year.
"Our financial performance has started to improve since May owing to the summer peak season. The traffic figures and financial results are much better than the year-ago period. During the current economic difficulties, low-cost carriers (LCC)s have become more attractive for many passengers."
(CQH) apparently has 2nd thoughts about its new base in Zhengzhou, the capital of Henan province. (CQH) is withdrawing service,
ostensibly because of economic reasons, though it says it may return in the future.
Owing to the rising profits, (CQH) is moving forward with fleet expansion. It took delivery of a 14th A320 and still plans to operate 100 airplanes by 2015, although it has yet to receive approval for the increase from the (CAAC).
A320-214 (4072, B-6612), delivery.
November 2009: Spring Airlines (CQH) expects to report a +CNY120 million/+$17.5 million net profit for 2009, a sixfold increase from the +CNY20 million earned last year, according to Chairman Wang Zhenghua. (CQH) was +CNY140 million in the black through September owing to rapid growth in the domestic market, "but the 4th quarter is the traditional low season, so it's not surprising that we are suffering from a daily loss of -CNY600,000 this month," Wang noted.
(CQH) is planning a dramatic fleet expansion. "We have decided to introduce 14 A320s in the next few years, which will cost about CNY5 billion," Wang said. It currently flies 14 A320s. It plans to go listed on the Shanghai Stock Exchange in the 2nd half of 2010 and has no plans to introduce a strategic or financial investor before then. It also is planning on introducing international routes. Its fleet will remain anchored by the A320, "so the best possibility is to open new routes to Japan, South Korea, and Taiwan, Hong Kong, and Macau," he revealed.
Chinese airlines are facing the prospect of canceling once-profitable domestic routes owing to increasing competition from high-speed rail. Spring Airlines (CQH), the country's most successful Low Cost Carrier (LCC), has stopped flying from Shanghai to both Zhengzhou and Wuhan because it was losing passengers to the train. "Currently our solution is to avoid opening short-haul routes that are shorter than 1,000 km." Sichuan Airlines (SIC) shuttered its Chengdu - Chongqing service on November 16 as loads fell below <50%.
January 2010: Spring Airlines (CQH) reported a profit of +CNY158 million/+$23.1 million in 2009, a sevenfold increase over the +CNY20 million earned in 2008, on a +27% lift in operating revenue to CNY1.99 billion. (CQH) credited "effective cost control" for the improved result. "We saved about -CNY103 million in operating expenses last year." (CQH)'s costs are about -35% below the industry average.
Last year, salaries for senior management were cut by -30%. (CQH) also adopted fuel-saving measures by optimizing routes, altitude and airspeed and reducing airplane weight.
Passenger boardings climbed +46% to 4.3 million in 2009, with an average load factor of 95% LF. (CQH) operates a fleet of 14 A320s and is expected to introduce 1 more at the end of this month. It plans to take delivery of 7 airplanes this year and will introduce 10 in 2011.
Its 1st international services will be launched by year end. "We hope to open new routes to Japan, Korea, Taiwan, Hong Kong, and Macau," Chairman Wang Zhenghua noted.
A320-214 (4168, B-6645), AerVenture leased.
February 2010: Spring Airlines (CQH) has accelerated its preparation for a listing on the Shanghai Stock Exchange in an effort to fuel its expansion. The privately held carrier is China's most successful Low Cost Carrier (LCC) and has reported a profit every year since its 2005 launch, including record earnings of +CNY158 million/+$23.1 million in 2009. It currently operates 15 A320s and plans to expand its fleet to 100 airplanes by 2015. It also plans to open international routes to Southeast Asia in time for Shanghai's "Expo 2010," which begins in May.
"We believe it serves the best interests of Spring (CQH) to go listed on the Shanghai Stock Exchange as it will enhance our management level to stay in line with modern enterprises. Currently, (CQH) relies too much on 1 or 2 top executives," Chairman Wang Zhenghua explained.
For this reason, (CQH) applied to the (CAAC) to change from a limited company to a holding company. Wang currently holds a 20% stake and >60 of (CQH)'s senior executives hold the remaining 80%. Wang noted that (CQH) does not plan to introduce a strategic or financial investor before it goes listed.
March 2010: Spring Airlines (CQH) expects to earn a net profit of >+CNY200 million/+$29.3 million this year owing to the economic recovery and "Expo 2010" in Shanghai, according to Chairman Wang Zhenghua. (CQH) reported earnings of +CNY158 million in 2009 and posted a profit >+CNY50 million through the 1st 2 months of this year (double the year-ago period) as demand rebounded. (CQH) plans to introduce 7 A320s to the fleet before July, expanding to 21 airplanes. It took 1 this month and will add another on March 25. It plans to be operating 100 airplanes by 2015 and is moving forward with plans to list on the Shanghai Stock Exchange in 2011 or 2012. It had considered accelerating that timetable. Meantime, Wang noted that Spring (CQH) will open its 1st international route in the 2nd half of this year. Hong Kong, Singapore, and destinations in Japan and South Korea are the options.
Shanghai Hongqiao International (SHA)'s new Terminal 2 became operational as the city prepares for "Expo 2010" scheduled to run from May to October. 11 carriers: - - China Eastern Airlines (CEA), Shanghai Airlines (SHA), Air China (BEJ), China Southern Airlines (GUN), Xiamen Airlines (XIA), Shenzhen Airlines (SHZ), Shandong Airlines (SHG), Hainan Airlines (HNA), Tianjin Airlines (GCR), Sichuan Airlines (SIC) and Juneyao Airlines (JYA) have transferred to the new terminal. The old T1 will continue to house (CQH) and charter flights to Japan and South Korea.
Total investment in T2 was approximately CNY11.5 billion/$1.7 billion. It can accommodate 30 million passengers annually, triple the intended number for T1, which was overloaded in 2009 with 25 million passengers and nearly 190,000 airplane movements. Hongqiao (SHA)'s new 2nd runway, which can handle the A380, also entered operation. With the greater capacity at (SHA) airport, China Eastern (CEA) is expected to increase its slot holding there by +50%, which General Manager Ma Xulun has said will boost (CEA)'s Shanghai market share by +3 points to 50%. Spring (CQH) Chairman Wang Zhenghua said his airline will add 5 slots.
A320-232s (4093, B-6646), delivery (4244, B-6667), (GEF) leased.
June 2010: Spring Airlines (CQH) will lease 2 new (CFM56)-powered A320-200s from (BOC) Aviation (SIL). The 1st airplane has been delivered from Airbus (EDS)'s Hamburg facility with the 2nd scheduled for delivery next month.
A320-214 (4331, B-6705), (BOC) Aviation (SIL) leased, ex-(D-AXAQ).
July 2010: Spring Airlines (CQH) reported a half-year net profit of +CNY160 million/+$23.6 million, a fourfold year-over-year improvement, allowing (CQH) to maintain a profit streak that goes back 5 years. (CQH) credited “robust growth of the domestic market” stimulated by the Chinese Spring Festival in February and the Shanghai World Expo for the result, a spokesperson said. Operating revenue climbed +64.4% to CNY1.47 billion.
Looking ahead, (CQH) expects to speed up its fleet expansion. Adding to its fleet of 20 A320s on >50 domestic routes, it plans to introduce 1 A320 in August and take delivery of 1 A320 every month beginning in 2011 to increase its fleet number to 100 by 2015. It said it is considering hiring +30 more foreign pilots (FC) this year—up from 10—for its expanding fleet.
(CQH) plans “to open international routes” and is expected to launch charter service between Shanghai Pudong and Ibaraki, Japan, on July 28, according to a spokesperson, who noted this service may become regular in October. (CQH) confirmed plans to add new international routes to Korea and other Southeast Asian countries in the near future.
September 2010: Spring Airlines (CQH) reported net income of nearly +CNY400 million/+$59.7 million for the 1st 8 months of 2010 owing to the “incredible Shanghai market” stimulated by the Shanghai World Expo, according to Chairman Wang Zhenghua.
He noted that (CQH)'s 8-month profit is >double the +CNY160 million profit achieved in the 1st 6 months of the year, demonstrating the strength of July and August. “Due to Shanghai World Expo stimulation, the average air fare rose +6% to 10% in July and August and that’s why we can double net income in these 2 months compared with the 1st half 6 months,” Wang said. The World Expo started in May and runs until October 31.
Looking ahead, Wang said Shenyang and Shijiazhuang are candidates to become (CQH)'s 2nd domestic base. A new domestic base won't open until the end of next year at the earliest, he added. Wang noted, “These cities have big market potential and local governments that are also quite supportive.”
(CQH) announced new international routes to Ibaraki airport near Tokyo, Japan and Hong Kong in August and September, respectively. Wang revealed that (CQH) is talking with other Japanese airports, and indicated that its next international route would “most probably be Japan.”
(CQH) introduced 7 A320s this year, bring its fleet to 21 of the type. It plans to take delivery of 10 A320s next year and expand its fleet to 100 by 2015.
January 2011: Spring Airlines (CQH) reported net income of +CNY470 million/+$71 million in 2010, nearly tripling its 2009 net profit of +CNY158 million. (CQH) Chairman Wang Zhenghua credited the "continuous growth of domestic market demand, especially boosted by the Shanghai World Expo," for the improved result. Wang said he expects 2011 will not be as strong a year. "This year the growth of market demand will slow down, so we expect our net earnings will decrease despite adding +30% to +40% more (ASK) capacity this year," he predicted.
Privately-run Chinese airlines are showing great interest in exploring the Japanese market. For example, (CQH) launched Shanghai - Ibaraki service last year and plans to open more new routes to other cities in Japan.
(CQH) plans to establish a 2nd domestic base in 2011, expected to be either Shenyang or Shijiazhuang. On the international front, (CQH) is slated to open new routes to Macau, Taiwan, Japan, and other Southeast Asian countries. It is operating with an average load factor of >90% LF on its Hong Kong and Ibaraki routes.
(CQH), owned by a major Shanghai-based tourism company, is China’s only low-cost carrier (LCC). (CQH) flies to most major Chinese cities from Shanghai Hongqiao airport (though not from Beijing).
(CQH) operates a fleet of 20 A320s and had planned to introduce 10 more A320s this year, but CAAC's strict control over carriers' fleet additions changed its expansion plan. It will now take delivery of 7 or 8 A320s this year.
February 2011: Spring Airlines (CQH), China's most profitable Low Cost Carrier (LCC), said it will launch a new 4x-weekly charter A320 Shanghai - Takamatsu service, part of a planned expansion in the Japanese market over the next few years. (CQH) noted it would change the charter flights into scheduled flights when market conditions improve.
(CQH) reported net income of +CNY470 million/+$71 million in 2010, nearly tripling its 2009 net profit of +CNY158 million. In January, it announced it would launch an Initial Public Offering (IPO) to help fund its fleet expansion.
Spurred on by its profitable Shanghai - Ibaraki route, on which load factors average 98% LF, (CQH) said it will accelerate its growth in Japan. It plans to open 3 or 4 new routes to Hokkaido, Honshu and Kyushu in the short term and open >20 new routes to Japan in the long term. A (CQH) spokesman also noted (CQH) plans to open charter routes to Thailand and Indonesia this year.
Juneyao Airlines (JYA) received approval to open routes to Japan and plans to launch Shanghai - Sapporo service this year.
March 2011: Spring Airlines (CQH) will postpone the opening of Shanghai - Kagawa service scheduled for March 27, owing to the crisis in Japan.
“We are not sure when to open the new route and I think it won’t be opened within 45 days,” (CQH) Chairman Wang Zhenghua said, noting (CQH) also suspended operation of its Shanghai - Ibaraki route. Wang stressed the carrier is still optimistic about the Japan market and won’t change its capacity allocation plan in Japan.
(CQH) reportedly will launch a 4x-weekly charter A320 Shanghai - Takamatsu service. It plans to open 3 or 4 new routes to Hokkaido, Honshu, and Kyushu in the short term, and open >20 new routes to Japan in the long term.
July 2011: Spring Airlines (CQH) posted net income of +CNY160 million/+$24.8 million in the 2011 1st half, down -6.3% from a net profit of +CNY170 million in the year-ago period, according to Chairman Wang Zhenghua.
Wang said (CQH)'s operating revenue for the year's 1st 6 months climbed >20% year-over-year to CNY1.9 billion. He didn't disclose operating expenses or passenger traffic figures. Looking to the year's 2nd half, Wang said, “We would expect our profit to decline compared with the same period of last year owing to the strong market growth stimulated by the Shanghai World Expo in 2010.”
Meanwhile, (CQH) is pressing ahead with plans to launch an Initial Public Offering (IPO) and is scheduled to be listed on the Shanghai Stock Exchange in the 1st half of next year. It hasn't decided how much it will aim to raise through the (IPO).
(CQH) is accelerating the pace of its Japanese market expansion but has slowed down the introduction of new airplanes owing to a pilot (FC) shortage. Wang said (CQH) plans to expand its fleet to 50 to 60 airplanes by 2015, a sharp contrast to the expansion plan announced last year calling for 100 airplanes by 2015.
(CQH) is accelerating the pace of its Japanese market expansion. (CQH) operates 3x-weekly, Shanghai - Ibaraki service, and is scheduled to open a 2x-weekly, Shanghai - Takamatsu route. It also plans to start Shanghai - Kyushu flights this year and a Shanghai - Hokkaido route next year. (CQH) delayed the opening of new routes in Japan owing to the natural and nuclear crises in March.
As part of its expansion plan, (CQH) is considering setting up a joint venture (JV) airline in conjunction with some Japanese enterprises, although Chairman Wang Zhenghua said there is no specific timetable and noted it would need government approval. “The reason that we want to set up a new (JV) in Japan is because our growth in China is constrained by a pilot (FC) shortage,” Wang explained. Japan Airlines (JAL)/(JAS) and All Nippon Airways (ANA) both plan to launch low-cost carrier (LCC) subsidiaries in the coming months.
Wang also implied that (CQH) is interested in launching (JV)s based in South Korea, Hong Kong, and Macau.
August 2011: Spring Airlines (CQH) received (CAAC) (CAC) approval to launch a daily, Shanghai - Beijing route in September.
October 2011: Spring Airlines (CQH) sees lots of potential in Japan. But it also sees potential in its home market, notwithstanding the twin challenges of pilot (FC) shortages and growing high-speed rail competition. (CQH) is particularly bullish on positioning Shijiazhuang in Hebei province as an alternative to Beijing. It 1st launched service there in 2009. Thanks to a large tour operator business, (CQH) is running 95% LF load factors on domestic routes and earned a $72 million net profit last year. It now operates 28 planes and most recently introduced “Spring Plus,” a product offering priority handling, a 1st-row seat, free food and other perks.
A320-214 (4760, B-6840), ex-(B-506L) 2011-10.
November 2011: A320-214 (4909, B-6851), ex-(F-WWBG), (GEF) leased.
December 2011: Spring Airlines (CQH), the most successful Chinese low-cost carrier (LCC) is preparing to launch a carrier in Japan to gain a deeper foothold in the Japanese market.
(CQH) has registered a company in Japan; however, since foreign investors can hold no >one-third stake in a Japanese airline, it is looking for a Japanese partner. Zhang said (CQH) is negotiating with potential investors in the new entity. According to Zhang, (CQH) also plans to explore other international markets. To that end, it will open new routes to Thailand and South Korea next year.
Spring (CQH), which has become one of the fastest growing carriers in China, is expected to report a higher net income in 2011 than the +CNY460 million/+$72.6 million net profit it earned in 2010. (CQH) is moving forward with an Initial Public Offering (IPO), which is scheduled to launch on the Shanghai Stock Exchange next year, to fund fleet expansion.
Spring (CQH) operates a fleet of 27 A320s and plans to expand to 50 to 60 airplanes by 2015.
January 2012: Spring Airlines (CQH) as China's only surviving low-cost carrier (LCC), has started flying to Saga, Japan. Although the flights are termed as charters, they do operate 2x-weekly, complementing (CQH) flights to 2 other Japanese cities: Ibaraki, near Tokyo and Takamatsu in the west.
(CQH) is tied to a large travel agency and tour operator based in Shanghai, which gives it a ready-made distribution channel.
This month (CQH) secured a $300 million loan to build up its balance sheet in advance of a planned Initial Public Offering (IPO). The share offering is expected sometime during the 2nd half of this year, assuming demand for airline stocks and Chinese stocks more generally is healthy enough.
2 A320-214s (4978, B-6863; 4983, B-6862), deliveries.
February 2012: Spring Airlines (CQH) is awaiting approval from the China Securities Regulatory Commission (CSRC) to launch an Initial Public Offering (IPO) via the Shanghai Stock Exchange that (CQH) said is needed to fund its planned fleet expansion. The launch date has not yet been determined; indications have pointed to the (IPO) taking place sometime in the current quarter.
(CQH) operates a fleet of 30 A320s on 57 domestic and international routes. Robust domestic market demand has led (CQH) to plan to double its fleet to 60 airplanes by 2015.
(CQH) Chairman Wang Zhenghua said previously (CQH) plans to lease about 50% of its future fleet. But it plans to purchase the other half, making it imperative to launch the (IPO).
At the end of last year, (CQH) announced plans to launch a carrier in Japan to gain a deeper foothold in the Japanese market.
(CQH) reported net income of +CNY470 million/+$74.8 million in 2010. Zhang said (CQH) expects its 2011 net profit to be higher.
March 2012: China's leading low-cost carrier (LCC), Spring Airlines (CQH), has been keeping a close watch on global (LCC) trends (and even hybridizing its model in pursuit of higher yields). (CQH) has extended its new "SpringPlus" mini-cabin to >12 routes and has launched "SpringPass," a comprehensive frequent flyer program.
(CQH) continues to pursue the creation of a Japanese operating base. Although Japan this year will be inundated with new (LCC)s (including Peach, Jetstar Japan and AirAsia Japan) the region remains under-served, and (CQH) may gain more favorable Chinese government approval expanding in Japan rather than the domestic mainland China market, rife with government-owned airlines. As (CQH) builds further awareness, and hopes to launch services to Bangkok, it is also considering a re-branding.
(CQH) Spring Airlines has targeted approval from the Chinese regulator, the (CAAC) to operate red-eye flights as critical to boosting its airplane utilization rate, which was approximately 11.5 hours in 2010 and 2011. Approval would also present growth opportunities at Shanghai's otherwise congested airports. Late night flights “would be helpful to release the great pressure on the 2 airports in the city, while increasing the turnout capacities.” Airlines, however, face lobbying from residents who oppose additional noise.
Maintaining high utilization rates is key to (CQH)'s policy, which Mr Zhang stated is based on ‘2 Highs, 2 Lows & 2 Singles.’ 2 highs refers to high load factor and high airplane utilization rate. (CQH) maintains an average load factor of 95% LF and airplane utilization that is +2 hours longer than the industry average. The 2 lows are low marketing costs and low management costs as “controlling operating costs is 1 of the keys to make profits”. The 2 singles refers to (CQH) adopting a single class configuration across its single airplane type of A320s. (CQH) operates a fleet of 30 A320s including 21 on operating leases and 9 purchased by (CQH).
Shanghai Hongqiao, primarily Shanghai's domestic airport, is (CQH)'s headquarters and main base. (CQH) also has an operating base at Shanghai Pudong airport, as well as in Shenyang in the northeast, and Shijiazhuang in northern central China.
(CQH) Chairman Wang Zhenghua, as quoted by the "Jiefang Daily," confirmed (CQH) has commenced preparatory work on its plans to establish a subsidiary in Japan. He cited Japan as a key overseas market for (CQH) among the markets within a 5-hour flight radius from China. In late February 2012, (CEO) Zhang Xiuzhi stated (CQH) had entered the final stages of negotiation with a potential Japanese partner, adding (CQH)’s Japan (JV) carrier could launch operations as early as June 2013.
Ms Zhang, as quoted by the "Beijing Business Times," did not reveal the potential partner but stated it is not a Japanese carrier. (CQH) has formally submitted an application to Japan's Ministry of Land, Infrastructure, Transport & Tourism (MLIT) to establish a branch company in Japan, with (CQH) considering 737-800 airplanes for the Japanese subsidiary. (CQH) noted that although (CQH) operates a fleet of all-A320s, the majority of Japanese pilots (FC) are more familiar with Boeing (TBC) airplanes.
Meanwhile, Mr Wang last month stated he “wants to hurry and fly to Tokyo, Nagoya and Osaka”, noting that traffic between China and Japan has recovered from the March 2011 earthquake and tsunami in Japan. He stated visitors from China to Japan are expected to be >2 million within 2 to 3 years. (CQH) operates from Shanghai to 3 Japanese destinations, including Ibaraki, Saga, and Takamatsu. (CQH) has also sought in recent months to increase frequency on these existing services. (CQH) is also considering expanding its network to include services to Kumamoto, Tottori, and Hokkaido.
(CQH) also plans to open a route to Bangkok with A320 equipment from Shanghai during the summer 2012 schedule, as part of efforts to add routes to Southeast Asia destinations in 2012. Thai Airways (TII) is the largest operator between Thailand and mainland China. (LCC) competition is limited: Thai AirAsia (THA) serves Guangzhou and Shenzhen, while Bangkok Airways (PGB) has a 2x-weekly service to Guilin. But Thai AirAsia (THA) does intend to further expand into mainland China. If (CQH) gains approval to operate to Bangkok, it would be the 1st time it has expanded beyond the Northeast Asian international market. At present, 92% of (CQH)’s capacity (seats) are deployed domestically, with (CQH)’s international network limited to 5 Northeast Asian destinations in Hong Kong, Ibaraki, Macau, Saga, and Takamatsu, served by 6 international routes.
While Bangkok is a more immediate priority, (CQH) is at the very preliminary stage of considering how it might serve the Indian market, linking 2 of Asia's fastest-growing economies. There are few flights from Chinese or Indian carriers, potentially making the market more palatable to the Chinese Government to open up to (CQH) than markets dominated by state-owned carriers. Potential for Indian (LCC)s is limited if they remain with narrow body-only operations due to key Chinese cities being too far from most Indian points. Chinese carriers, however, could use a central or western hub to access India with narrow body airplanes, although, in (CQH)'s case, that would entail having to support connecting flights.
(CQH) would need to establish a central or western Chinese base for Indian services, and potentially working in its favor is that China's current "5-Year Plan" supports growth in central and western China. Air China (BEJ) has a strong base at Chengdu, while China Southern (GUN) is building its base in Chongqing.
While some airlines debate the benefits of a hybrid model, (CQH) views hybridization as a necessity. "We believe that (LCC)s now need to consider what elements of the legacy product we can adapt to our own operating environments," Ms Zhang remarked last month. Airlines often pursue hybrid models for 2 reasons. 1st is the opportunity to gain higher yields from service and product improvements, almost always tied to targeting the corporate market. 2nd, and not always present, is the nudge to move upmarket as competitors narrow the gap on cost bases; many airlines have found it easier and more financially sound to move upmarket than attempt to take costs out.
(CQH)'s moves are primarily driven by opportunity and not competition. Demand in China remains high, especially during national holidays, and (CQH) stands to gain higher revenue benefits from changes than the costs necessary to implement. While (CQH) faces no other domestic (LCC) competition, China's legacy carriers already operate relatively lean cost bases. Service and product innovation is slowly finding a place at legacy carriers, underscoring the need for (LCC) innovation. Some global hybridization paths have seen the introduction of premium economy (PY) or even business (C) class, but (CQH) is starting with a very low-risk option.
It is taking the front row of seats (in a 3-3 configuration but with extra legroom) and marketing them as part of its "SpringPlus" product, which also includes priority check-in and boarding, complimentary meals and ticketing flexibility. Prior to "SpringPlus" December 2011 roll out (and a September 2011 trial), the front row seats, with about 42 inches of pitch, were given away at departure in a lottery that generated buzz. The service, as of early March 2012, was available on 13 of (CQH)'s approximately 60 domestic and international routes operated with a fleet of 30 A320s. A January 2012 sample study found "SpringPlus" to generally have favorable pricing over its competitors' first (F) class and premium economy (PY) products.
(CQH) has also evolved to include a frequent flyer program (FFP), called "SpringPass," launched in February 2012. (CQH) has followed the industry in allowing for redemption on not just air travel tickets but also packages and non-related merchandise ranging from a plastic cooking strainer to an iPad to a Mazda 3. Like other (LCC)s with a (FFP), (CQH) has chosen to award points based on ticket prices and not distances flown, a system that in particular rewards high-spending corporate travelers taking up (CQH)'s "SpringPlus" offering. Points earned are calculated as a percentage of the fare, ranging from 5% to 15% (during National Holidays rates are dropped to 2 - 5%). The plastic cooking strainer can be redeemed for 34 points, the iPhone for 5099 points and the Mazda 3 for 147,800 points.
(CQH) allows passengers purchase points outright and is also evaluating earning opportunities from credit cards, typically the highest source of revenue for (FFP)s. In turn, (FFP)s can be very profitable corners for airlines, and even generate higher returns than flying divisions.
Meanwhile, (CQH) now deploys its premium economy (PY) seats across 13 of (CQH)’s routes from Shanghai, including Beijing, Chongqing, Xian, Xiamen, Shenzhen, and Urumqi. (CQH) 1st trialled the service on its 3x-daily, Shanghai - Guangzhou sector from September 2011. The product is a reaction to increased demand from business (C) travelers, who account for three-quarters of total passengers on average, according to (CQH).
(CQH) is increasingly focused on business (C) travelers, with Mr Wang explaining that there is a growing trend for (LCC)s to attach “more importance to business (C) travelers, as the clear-cut boundaries between legacy carriers and low-cost carriers (LCC)s are blurring in recent years.” “We used to only care about price-sensitive leisure travelers, but now we want to tap business travelers who want good prices and also a quiet environment,” Mr Wang added. To enhance its appeal, (CQH) is targeting services to key business destinations.
The broadening of focus has occurred as Spring Airlines (CQH) has been forced to slow its rapid pace of expansion due to a shortage of pilots (FC). (CQH), which is currently recruiting former Spanair (SPP) pilots (FC), will still grow despite the growth cutback, although it is introducing a new focus of more measured and strategic growth, with a new focus on expansion through (JV)s in other North Asian market and a new focus on business (C) passengers. “Shareholders want to see (CQH) has a good and stable development. They don’t want to see any damage caused by overly aggressive expansion,” Mr Wang has previously noted.
As (CQH) adapts its business model and expands into new markets, it is preparing to launch an Initial Public Offering (IPO). Mr Wang this month stated (CQH) is on track to complete its (IPO) in the 1st Quarter 2012, adding preparatory work is progressing well and it is awaiting China Securities Regulatory Commission approval. Proceeds from the (IPO) will be used to purchase new airplanes to expand its route network. He also noted that the decision to launch an (IPO) and not introduce new strategic investors in the process, is aimed at allowing more freedom to choose its strategies when facing competition from other airlines.
Mr Wang also stated he is confident (CQH) will report higher profit growth in 2012. (CQH) estimates its 2011 profit to have reached approximately +CNY500 million/+$78.1 million, exceeding its 2010 profit of +CNY470 million/+$73.4 million, attributed to the overall growth of China’s aviation industry and the (LCC)’s strong load factor, averaging 95% LF.
(CQH) since its establishment in 2005, has defied the odds by growing rapidly and profitably in the heavily regulated Chinese market that favors the larger, state-owned carriers. While it has had success as the nation’s largest (LCC), it has faced a number of challenges, although it has been quick to adjust its model and operations in reaction to prevalent industry and market trends and operating factors.
(CQH)'s strong run of profitability and newly granted access on key domestic (such as Beijing - Shanghai) and an increasing number of international routes gives it every reason to be confident of its future growth prospects, despite the limitation imposed by a lack of pilots (FC). A successful (IPO) will only embolden (CQH) as it looks beyond the Chinese border.
The USA is proving a lucrative recruiting ground for China's aircrew (FDC)-hungry airlines, with almost 100 pilots (FC) hired by 12 carriers at a recent job fair in two USA cities, according to organizers.
The event (held over 2 days in Miami followed by a day in Las Vegas) was run by Chinese pilot (FC) leasing company (WASINC) and hosted by Miami-based Pan Am International Flight Academy. Organizers said 750 USA captains (FC) (some with as much as 25 years' experience) attended.
Despite signing up almost 100 pilots (FC), the organizers said another 100 positions still need to be filled.
"Between now and 2030, the Asia-Pacific area will need 180,000 pilots (FC). China alone will need 70,000," said event co-ordinator, Steve Turner of (WASINC). "It's a real enticement to USA pilots (FC) currently sitting at the bottom of the career ladder here to look overseas, where the pay is so much better."
According to (WASINC), Asia is the fastest-growing aviation region in the world, with starting salaries for a 3-year commitment working out at almost $200,000 a year. This compares with average pay for a captain with equivalent experience in the USA of $118,000.
(WASINC) said another event is planned for next year. Participating Chinese airlines included Air China (BEJ), Skymark Airlines (SKM), Business Aviation Asia, Shenzhen Airlines (SHZ), Hainan Airlines (HNA), Tianjin Airlines, Sichuan Airlines (SIC), Xiamen Airlines (XIA), Chengdu Airlines, (CQH), Okair (OKA), and West Air.
The organizers later released a statement saying that they were not targeting pilots (FC) working for a specific airline.
June 2012: Jetstar Hong Kong, the joint venture (JV) low-cost carrier (LCC) being set up by China Eastern Airlines (CEA) and the Qantas Group subsidiary Jetstar (IMU), is on track to formally launch by the end of 2012 or early next year, according to (CEA) Chairman Liu Shaoyong.
The (JV), which will have a registered capital of $115 million with each partner owning 50%, was announced in March. (CQH) has applied for its air operator’s certificate (AOC) from the Hong Kong government.
(CEA) General Manager Ma Xulun asserted that (LCC)s have great potential in the Chinese market. “(LCC)s account for >25% share of the global air transport market and the figure is >33% in Southeast Asia, while comparably speaking, this figure is <5% in China.”
Industry analysts pointed out that challenges remain for Chinese carriers developing (LCC) business models, including high import taxes for foreign-made airplanes and a shortage of pilots (FC) and airports. Liu conceded that “the operating environment for domestic carriers still needs to be improved,” but added he is confident Jetstar Hong Kong can make a profit by its 3rd year of operation.
The only (LCC) in China is Shanghai-based Spring Airlines (CQH), which has been profit-making since its launch in 2004. It reported net income of +CNY500 million/+$79 million) in 2011. (CQH) is preparing to launch an Initial Public Offering (IPO).
A320-214 (5022, B-6931), ex-(B-513L), delivery.
August 2012: Spring Airlines (CQH) became the 1st low-cost carrier (LCC) on the busy route between Shanghai Pudong (PVG) and Thailand’s capital Bangkok (BKK) on August 10, when (CQH) began operating daily flights with its 174Y-seat A320s. Competition comes from each 2x-daily flights on Thai Airways (TII), China Eastern (CEA) and Shanghai Airlines (SHA) as well as also daily services on SriLankan Airlines (LNK). Thailand thereby becomes (CQH)’s 2nd country market outside of Greater China, after Japan.
September 2012: Spring Airlines (CQH) is reportedly planning to launch operations in Japan with a fleet of 3 737-800s. (CQH), the largest privately owned low-cost carrier (LCC) in China, currently operates 33 A320-100/-200s predominantly on domestic flights. (CQH) internationally already serves Bangkok Suvarnabhumi International (BKK), Hong Kong Chep Lap Kok International (HKG), Macau International (MFM) as well as Ibaraki Hyakuri (IBR), Saga (HSG) and Takamatsu (TAK) in Japan.
(CQH) will follow in the footsteps of AirAsia (ASW), Jetstar (IMU) and Tiger Airways (TGR) in establishing a pan-Asian strategy to have subsidiaries outside its home market. The 1st will be in Japan. While Japan already has local AirAsia (ASW) and Jetstar (IMU) subsidiaries and Spring (CQH)'s strategy may appear to be merely copying other carriers' strategies, (CQH)'s strategy is guided by other objectives.
Airlines in mainland China are heavily regulated and direct competition is limited. Establishing a foreign subsidiary, however, will give (CQH) more transparent regulatory frameworks to work with in order to serve international Chinese routes. The foreign bases also allow flights to 3rd countries. With China to become the largest market for (LCC)s, (CQH) has the potential to capitalize internationally on its local awareness as well as offer access to China's domestic network, which remains something of a holy grail for AirAsia (ASW) and Jetstar (IMU). But (CQH) will face the challenges of sophisticated Information Technology (IT) and ancillary revenue, which AirAsia (ASW) and Jetstar (IMU) have a large start on.
All Nippon Airways (ANA) said that 40,000 seat reservations were cancelled on flights between Japan and China from September to November, due to escalating political tension between the 2 countries over a chain of disputed islands in the East, "Reuters" reported.
Japan Airlines (JAL) previously announced it would temporarily cut some of its daily services.
Juneyao Airlines (JYA) has delayed the opening of its new 4x-weekly, Shanghai - Okinawa route to November, which was scheduled to launch September 20. Spring Airlines (CQH) cancelled its 10 charter flights to Tottorri, which was to launch September 23.
October 2012: All Nippon Airways (ANA) said that 40,000 seat reservations were cancelled on flights between Japan and China from September to November, due to escalating political tension between the 2 countries over a chain of disputed islands in the East, "Reuters" reported.
Japan Airlines (JAL) last month announced it would temporarily cut some of its daily services.
Juneyao Airlines (JYA) has delayed the opening of its new 4x-weekly, Shanghai - Okinawa route to November, which was scheduled to launch September 20. Spring Airlines (CQH) cancelled its 10 charter flights to Tottorri, which was to launch on September 23.
November 2012: Spring Airlines (CQH) announced a significant expansion of its services between Hong Kong and mainland China, a high-demand market that has only recently seen competition. (CQH)'s addition of services from Hong Kong to Chongqing, Hangzhou, Nanjing and Xiamen supplement its 3 daily flights between Hong Kong and its base at Shanghai.
The once-stagnant market is seeing rapid change and competition with fledging carrier Hong Kong Airlines (CRY), invigorated mainland carriers, a tie-up between Hong Kong Airlines (CRY) and China Eastern (CEA) as well as the forthcoming entry of planned low cost carrier (LCC) Jetstar Hong Kong.
Spring (CQH) is moving away from a strict interpretation of the model at it seeks higher yields, hybridizing as other former (LCC)s have done. Its advantage and platform for growth is efficiency, which is generally lacking in China's state-owned airlines.
December 2012: Hong Kong Airlines (CRY)’s affiliate, Hong Kong Express Airways (HKE) will rebrand as a low-cost carrier (LCC) by mid-2013. (CRY) President, Yang Jianhong said the (LCC) will confront declining international market demand.
Hong Kong Express (HKE) and Hong Kong Airlines (CRY), both subsidiaries of Hainan Airlines (HNA), were launched in 2004 and 2006, respectively, and merged. Even though they are led by the same management staff, both carriers own separate air operating licenses (AOC)s.
(HKE) offers passenger service to destinations in China, Japan, South Korea, Thailand, Indonesia, and the Philippines with a fleet of Boeing 737NG airplanes.
Next year, Hong Kong Express (HKE) is expected to face fierce competition from Jetstar Hong Kong, the (LCC) launched by China Eastern Airlines (CEA) and Jetstar (IMU). (HKE) plans to operate 3 A320s initially and expand its fleet to 18 A320s by 2016. It will offer passenger service to Greater China region (China’s mainland, Hong Kong, Macau, and Taiwan), Japan, Korea, and Southeast Asian countries.
China’s (CQH) also plans to launch a low-cost carrier (LCC) subsidiary in Hong Kong in the near future.
(CQH) is expanding services between the Chinese mainland and Hong Kong. (CQH) has opened 4 direct routes to Hong Kong from Hangzhou, Xiamen, Nanjing, and Chongqing. (CQH) will launch daily flights from Hangzhou and Xiamen to Hong Kong. It will also launch 4x-weekly, Nanjing to Hong Kong service and 3x-weekly, Chongqing to Hong Kong service.
(CQH) will initiate an initial public offering (IPO) in the Hong Kong Stock Exchange in the 1st half of next year, when it is expected to get approval to launch an (IPO) via the Shanghai Stock Exchange to collect about CNY1 billion to fund its planned fleet expansion.
January 2013: Spring Airlines (CQH) is a budget carrier that is a potential threat to the lumbering state airlines, with service and cost levels closely matched to the needs and wallets of Chinese fliers. The experience of low-cost carriers (LCC) in Southeast Asia suggests that China is a superb territory for this model: Income levels are there, though varying by region and city, comparing closely with those of Indonesia, Thailand, and Malaysia, where budget carriers have become dominant. So far, (CQH) has not been able to realize anything like its growth potential, as it has only about 30 A320s. But with a new administration taking control in Beijing, market-based reform in aviation could yet appear (to the benefit of (CQH)).
A320-214s (5434, B-6971), (GEF) leased, (5446, B-9928), (CGP) leased, and (5366, B-6972), (AWAS) AWA) leased.
March 2013: Spring Airlines (CQH) took delivery of 1 new A320 on lease from (GECAS) (GEF).
April 2013: Spring Airlines (CQH), the self-proclaimed 1st and only Low Cost Carrier (LCC) in China, has inaugurated a service between Shijiazhuang (SJW) and Dalian (DLC) on April 19. Flights on the 600 km route are operated by (CQH)’s A320s in competition with China Southern Airlines (GUN), which also flies the city pair daily. The route becomes the 12th destination (CQH) flies from Shijiazhuang, the capital and largest city of North China’s Hebei province.
(CQH) has applied to open a new route to Seoul as it shifts focus from Japan to Korea and Southeast Asia.
Shanghai Pudong expects its 4th runway to be completed at the end of 2013 but new slots are unlikely to be available until some point in 2014. It is not clear (not even to Chinese carriers) how many new slots will be available, but an early estimate of 242 additional movements (121 round trips) between 7 to 22 each day could be possible. A more deciding factor will be how much additional airspace is opened by China's military for the runway.
The majority of the new slots at Shanghai Pudong Airport (and even upwards of 75%) will likely be allocated to China's domestic carriers. China Eastern (CEA) based at Shanghai, will have to battle Air China (BEJ), which is based at Beijing but looking to establish a hub at Shanghai. As the national flag carrier, Air China (BEJ) and its lobbying network may do well. Private carriers Juneyao (JYA) and Spring Airlines (CQH) will also look to expand their home bases.
A number of carriers, including low cost carriers (LCC)s, will seek to move midnight services to daylight hours, while any number of foreign carriers will seek to expand their presence or enter Shanghai for the 1st time. Strategic allocation will help Pudong, but the decision will be heavy, almost entirely, political.
(UTC) Aerospace Systems was selected by (CQH) to provide wheels/brakes (plus aftermarket Maintenance Repair & Overhaul (MRO)) for 20 737-800s on order.
June 2013: A320-214 (5562, B-9940), ex-(B-517L) delivery.
September 2013: Spring Airlines (CQH) has applied to launch a low-cost carrier (LCC) in Japan, becoming the 1st Chinese carrier to set up a joint venture (JV) outside of China.
(CQH) has taken delivery of the 1st sharklet-equipped Airbus A320. The A320, powered by (CFM56) engines, features a single-class economy cabin, seating 180Y passengers. The A320 operated its 1st commercial flight from Shanghai to domestic destinations on September 27.
The A320 is part of an order of 30 A320s placed in May 2008 and is part of (CQH)’s plans to expand its fleet to 100 airplanes by 2015.
October 2013: Spring Airlines (CQH) is expected to become the 1st Chinese low-cost carrier (LCC) to operate flights between China’s mainland and Taiwan.
(CQH), which now operates a fleet of 38 A320s, has started its 1st-ever cross-straits service, linking Shanghai Pudong (PVG) with Kaohsiung (KHH) in Taiwan. The 3x-weekly service operates on Wednesdays, Fridays and Sundays. Competition on the 960 km route is provided by China Airlines (CHI), (EVA) Air and Juneyao Airlines (JYA), who each operate 2x-weekly services.
December 2013: Spring Airlines (CQH) has received approval from Japanese aviation authorities to launch subsidiary "Spring Japan" (CQJ).
The new entity, which has leased 3 Boeing 737-800s, plans to make Tokyo Narita its main operating base for service to Takamatsu, Hiroshima and Saga. Its maiden flight is scheduled to launch in May 2014; it is currently hiring pilots (FC) and cabin crew (CA).
(CQH) did not reveal the exact amount of the new venture’s registered capital, but is expected to hold a 33% stake, while other Japanese companies would hold the rest.
(CQH) plans to open more new routes to Japan and is applying for approval for a Shanghai (Pudong) to Osaka route in January 2014. It operates 3 Japanese routes from Shanghai to Ibaraki, Takamatsu, and Saga with an average load factor of 80% LF.
China’s big domestic carriers all cut capacities on Sino-Japan routes since September, as market demand declines owing to worsening political relations between 2 countries.
A320-214 (5911, B-9986), ex-(F-WWBQ), (GECAS) (GEF) leased.
January 2014: Spring Airlines (CQH) has seen its load factor fall to 60% LF from over >90% LF on its Japanese routes, due to the political tension between Japan and China caused by the territorial dispute over the Diaoyu Islands.
Japanese media reported that (CQH) registered a lower-than-expected load factor of 66.3% LF on Shanghai - Saga route. (CQH) now operates 3 services connecting Shanghai with the Japanese cities of Ibaraki, Takamatsu, and Saga. The Shanghai - Saga route, which was launched in July 2010, is (CQH)'s first Japanese service.
Before the territorial dispute over the Diaoyu Islands, (CQH)'s load factor on the Shanghai - Ibaraki route reached 98% LF, and its Saga and Takamatsu services also registered a load factor of >90% LF.
The load factor on Shanghai - Ibaraki route slumped to 49.5% due to the weak demand of Chinese group tourists after the Japanese government announced to buy the Diaoyu Islands, according to the media report.
Spring Airlines (CQH) said the data has not been confirmed yet, but admitted the load factor on its Saga and Takamatsu services dropped to 50% - 60% LF, while its Ibaraki service had seen a higher load factor of 80% LF, adding that the Diaoyu Islands dispute has had a significant influence on the load factor.
In addition, (CQH)'s low-cost carrier (LCC) subsidiary, Spring Airlines Japan (CQJ) received Japan permission to enter service in December 2013 and is scheduled to commence operations in May 2014.
February 2014: Spring Airlines (CQH) is increasing its capacity at Shenzhen Bao'an International Airport. Commencing on February 21, 2014, (CQH) will launch new scheduled services from Shenzhen to 3 domestic destinations: Zhangjiakou, Shenyang, and Hangzhou.
The new route to Shenyang, in northeast China's Liaoning province, will operate daily. 3 of these services (Tuesdays, Thursdays and Saturdays) however, will include a stop in Zhangjiakou, Hebei province. The direct service to Hangzhou, in Zhejiang province, will operate daily.
All of Spring Airlines (CQH)'s routes are served using single-class, 180-seat Airbus A320 airplanes.
Meanwhile, Spring (CQH) has also submitted applications to launch direct services from Shenzhen to several international destinations, including Jeju, Kota Kinabalu, Bangkok, and Phuket. All the new routes are expected to be operational from April this year.
March 2014: Spring Airlines (CQH) has ventured into a highly competitive international market by launching daily flights on March 15th from Shanghai Pudong (PVG) to Osaka Kansai (KIX) in Japan. The 1,310 km route is flown by (CQH)’s A320s and faces direct competition from 5 other carriers; China Eastern Airlines (CEA) (3x-daily), Air China (BEJ), All Nippon Airways (ANA) and Japan Airlines (JAL) (each with two daily flights), and Shanghai Airlines (SHA) (daily flights). Osaka becomes Spring Airlines (CQH)’s fourth route to Japan from Shanghai following Ibaraki (Omitama), Saga, and Takamatsu.
Spring Airlines (CQH) is considering selling standing tickets if approved by the Civil Aviation Administration of China (CAAC) (CAC), according to (CQH) Spring Chairman, Wang Zhenghua.
Wang said the standing tickets would be -30% to -40% cheaper than air tickets for flights <2 hours. He also said Airbus (EDS) is willing to retrofit its A320 airplanes with standing-room cabins, but (CQH) has not yet received (CAAC) approval owing to safety concerns.
Wang said (CQH) plans to have 3 class configurations: business-economy (PY) class, which would expand to 24 seats from the current 12 seats; 78Y economy seats; and 120 standing places in a standing-room only cabin, which would increase passenger boardings +30% on a single A320.
In addition, (CQH) is opening 4 international routes from Shanghai to Singapore, Osaka, Chiang Mai, and Da Nang, Vietnam at the end of March. It will also boost flight frequencies on routes to Jeju and Sabah. This year, (CQH) plans to increase international capacities from 16% to 30% as it increases weekly international service to 103 flights.
With bases at both Shanghai airports (Hongqiao (SHA) and Pudong (PVG)) as well as Shenyang in northeast China and Shijiazhuang, Beijing’s new gateway airport, (CQH) is China’s largest low-cost carrier (LCC). Since August 2010, (CQH) has grown its weekly seats and flights by >60%, and the number of destinations served has grown from 37 to 54. According to its website, it is the "only" (LCC) in China (clearly it does not acknowledge the existence of West Air (CHO), a Chongqing-based daughter company of Hainan Airlines (HNA), which launched in 2010). Despite this ‘disagreement,’ the numbers speak for themselves, as (CQH) offers nearly 2x- as many seats as West Air (CHO). However, to put (CQH)’s operating scale into some context, it flies around 15% of the weekly seats that Air China (BEJ) offers, 12% of China Eastern Airlines (CEA) and just 11% of China Southern Airlines (GUN).
(CQH)’s top 12 airport bases (SEE: "CQH-2013-03-TOP 12 BASES") currently command 71% of the (LCC)’s near-1,400 weekly flights. This figure has reduced from 74% over the last 12 months, which gives a clear indication that (CQH) is using its current +20% annual capacity growth to diversify its network, and reduce the reliance on its Shanghai bases. Indeed, despite a +3% hike in weekly flights at Hongqiao, and a +25% increase at Pudong, these 2 airport’s share of (CQH)’s weekly flying has fallen from 37% to 34% since last March.
Serving new international markets is making up a steady component of the airline’s capacity increases, with flights from Luoyang to Hong Kong, as well as Shanghai Pudong to Kaohsiung, and most recently to Osaka Kansai, its fourth Japanese route. That said, outside of China, Spring (CQH) only serves 8 country markets, with Cambodia (Siem Reap), Malaysia (Kota Kinabalu), South Korea (Jeju) and Taiwan (Taipei and Kaohsiung) having been added in the previous 12 months.
While Pudong has witnessed the largest increase in net weekly flights (+46) over the last year, in terms of percentage growth it is Shenzhen and Hanghzhou (both +200%), that have seen the largest capacity increases, and in the process moved them firmly into (CQH)’s top 12 airports. Only 2 of the current top 12 have seen reductions in weekly flights (namely Chongqing (-8.6%) and Sanya (-6.1%)) however, it is perhaps the precipitous decline of Guangzhou (last year’s #6 airport) that is the most noteworthy, dropping by -33% year-on-year and falling out of the top 12 to #13.
Unsurprisingly, it is (CQH)’s 2 Shanghai bases which dominate the (LCC)’s largest routes by weekly seats, with the Shenyang to Hangzhou (highlighted) airport pair being the only sector not to feature either Hongqiao or Pudong. In March 2014, the top 14 airport pairs represent 20% of the airline’s weekly capacity commitments, down from 23% in March 2013, further echoing (CQH)’s trend towards a more diverse route portfolio (SEE ATTACHED - - "CQH-2014-03-TOP AIRPORT PAIRS").
3 routes inside the top 14 (all new entrants) over the last year have all seen a doubling of their respective weekly seats (all of them from Hongqiao) to Sanya, Quanzhou and Qingdao. Cuts on Hongqiao to Guangzhou of 40% (which had previously been (CQH)’s joint highest route served with 5 daily flights) and from the same Shanghai base to secondary hub Shijiazhuang of 33%, have clearly freed up capacity for the increases to these top 14 new entrants mentioned above. 5 of the top 14 routes remain unchanged in terms of weekly seats year-on-year.
New services to start later this year are currently all international and include 4x-weekly operations to Chiang Mai in Thailand, as well as 2x-weekly to Da Nang in Vietnam, both from Pudong and both starting on March 31st. A daily service to Singapore from (CQH)’s Pudong hub will also begin on April 25th, along with a 2x-weekly route from Shijiazhuang to Taipei Taoyuan.
April 2014: Spring Airlines Japan ((IATA) Code: IJ, to be based at Tokyo Narita) will launch operations on June 27, linking Tokyo Narita with the 3 western Japanese cities of Hiroshima International, Saga and Takamatsu. Operations are on board 3 737-800s currently in storage following delivery from Boeing (TBC).
The Spring Airlines ((IATA) Code: 9C, based at Shanghai Hongqiao) (CQH) subsidiary will be the 4th low-cost carrier (LCC) to offer domestic Japanese flights.
May 2014: Spring Airlines (CQH) on April 25th, began 2 new international routes. From Shanghai Pudong (PVG), (CQH) began daily flights on the 3,795 km sector to Singapore (SIN), while also launching lower frequency flights between Shijiazhuang (SJW) and Taipei Taoyuan (TPE) in Taiwan. Both routes will be operated by (CQH)’s A320s. On the Singapore route, competition comes from Singapore Airlines (SIA) (35x-weekly) and China Eastern Airlines (CEA) (26x-), while on the 1,570 km route to Taipei, China Eastern (CEA) and Far Eastern Air Transport (FAT) both operate 3x-weekly.
Shanghai-based low cost carrier (LCC), (CQH) has suspended plans to launch an initial public offering (IPO) on the Shanghai Stock Exchange to raise funds for fleet expansion.
According to the China Securities Regulatory Commission (CSRC), the most critical reason for the sudden suspension was due to an internal report that the company’s profits in proportion to local government subsidies, are too high.
The (CSRC) said the problems “need further implementation of the abolition of the issuance examination committee meeting on the issue of Spring Airlines (CQH) filings audit.”
(CQH) had planned to collect CNY2.5 billion/$406 million to purchase 9 Airbus A320s worth about CNY1.33 billion at list prices, as well as 3 A320 flight simulators, which are worth about CNY300 million at list prices; the rest would be used for cash flow.
According to a (CQH) pre-disclosure statement, >100 employees hold 70% of the stakes in the airline.
Spring (CQH) spokesman, Zhang Wu’an noted: “We made a full disclosure of the situation. We are well prepared to deal with the various regulatory agencies audits.”
June 2014: Spring Airlines (CQH)'s low cost carrier (LCC) subsidiary, Spring Japan has postponed its inaugural flight to August 1 due to “inadequate preparation work.”
Spring Japan was originally scheduled to launch its maiden flight in May, but postponed it to June 27 for unspecified reasons. According to Japanese media reports, the delay is due to a pilot (FC) shortage.
Spring Japan had planned to open 3 new routes from Tokyo Narita to Takamatsu, Hiroshima, and Saga. The delay has affected 592 flights and 10,000 passengers.
Spring Japan will still open these 3 new routes August 1, but the flight frequency of the Narita - Takamatsu route will be reduced from 2x-daily to daily.
(CQH) is expected to hold a 33% stake in Spring Japan, while other Japanese companies hold the rest.
July 2014: Spring Airlines (CQH), the Shanghai-based low-cost carrier (LCC), increased its presence in the Japanese market with the addition of 3 new routes to Osaka Kansai (KIX), all of which are operated by its 149-seat A320s and will face no competition from other operators. On July 18th, (CQH) inaugurated 4x-weekly flights on the 1,677 km sector from Tianjin (TSN). The same day, (CQH) added other 4x-weekly operations, this time from Wuhan (WUH). In addition, on July 19th, (CQH) commenced its 5th route from Chongqing (CKG) with 3x-weekly services.
The 1st commercial flight of Spring Airlines Japan is to be on August 1. The carrier, which got the license to start operations from the Ministry of Land, Infrastructure, Transport & Tourism of Japan in December 2013.
Spring Airlines Japan was supposed to commence service on June 27, but it postponed its inaugural flight until August 1 due to a lack of preparations, it said.
Spring Airlines Japan will operate a fleet of 3 Boeing 737-800 airplanes in the initial stage and plans to deploy them on three services from Tokyo Narita to Saga, Hiroshima, and Takamatsu. It is also considering operating its international service from Tokyo Narita in the future.
Spring Airlines Japan plans to offer 2x-daily round-trips on each of the 3 routes. However, 1 of the daily round-trips on the Narita - Takamatsu route will be suspended from August 1 through October 25 due to an inability to hire as many pilots (FC) as initially planned. The airline said that it will sell Japanese specialties on the flights.
In addition, AirAsia (ASW) announced to return to the Japanese aviation market with a new partner early this month. The entry of Spring Airlines (CQH) and AirAsia in Japan will intensify competition in the nation's air travel market.
(CQH) has selected (CFM) International's (CFM56-5B) engine to power 30 Airbus A320ceo airplanes, in an order valued >$620 million at current list prices. (CQH) will begin taking delivery in 2015.
(CQH) (CEO) Zhang Xiuzhi said, “We have been cooperating with (CFM) International since our 1st day of operation. The performance of the (CFM56) engines, combined with the service solutions and world-class customer support from (CFM), have proven to be an important part of our operations. (CFM) continues to earn our trust every day.”
August 2014: Spring Airlines (CQH)) is considering introducing wide body airplanes to its fleet. Zhang Wu'an, spokesman for (CQH), said that (CQH) plans to introduce the Airbus A330 airplane and launch long-haul international routes to Europe and the USA, but did not say if (CQH) wants to buy or lease the airplane.
(CQH) may have no 1st (F) or business (C) class cabins on its wide body airplanes. However, (CQH)'s pricing system allows it to offer much cheaper tickets on long-haul flights, said Zhang, for example, a 1-way ticket can be as low as 599 yuan from Shanghai to Paris.
In addition, (CQH) announced it is to launch a service linking Shanghai and Seoul, South Korea starting from September 23rd, which is (CQH)'s 9th international flight to be launched this year. (CQH) has been ambitiously expanding its overseas market share in recent years, with its international capacity accounting for 18% of the total.
The non-stop Shanghai - Seoul service will be offered 4x-weekly on Tuesdays, Thursdays, Fridays and Sundays, using Airbus A320s. The outbound flight 9C8559 is scheduled to take off from Shanghai Pudong International Airport (PVG) at 2:10 pm and arrive at Seoul Incheon International Airport (ICN) at 3:55 pm, with the return flight 9C8560 departing from Seoul at 4:55 pm and landing in Shanghai at 6:55 pm. In the initial stage, to celebrate the launch of its new non-stop service, (CQH) is to launch a special promotion to offer discount airfare as low as 99 yuan for a single-trip (excluding tax).
"Seoul is an important destination (CQH) has always strived for. The opening of Shanghai - Seoul route completes the Chinese low-cost carriers (LCC)'s network covering major cities in China, Japan and South Korea," said Zhang Wuan, a spokesman for (CQH). Compared with taking a non-stop flight to America, (CQH)'s passengers could enjoy a much lower cost by transiting at (ICN).
Since launching its 1st international flight to Japan's Ibaraki Airport in July 2010, Spring Airlines (CQH) has been actively exploring overseas markets, and its international capacity accounts for 18% of the total. Currently, it operates an all-Airbus fleet of 43 A320s with a maximum range of more than >5,000 kms, limiting the expansion of its medium- and long-haul overseas market. In the near future, (CQH) is considering introducing Airbus A330 wide-body airplanes, to explore European and American routes, revealed Mr Zhang.
Spring Airlines Japan, the new Japanese low cost carrier (LCC) in which China’s Spring Airlines (CQH) has a significant share, launched operations from Tokyo Narita (NRT) on August 1st. Unlike its Chinese parent company which operates A320s, Spring Airlines Japan has opted for 737-800s to serve the Japanese market. The 1st 3 routes it started are to Hiroshima (HIJ), Saga (HSG) and Takamatsu (TAK). Apart from the direct competition from Tokyo Narita, all 3 destinations are served with multiple daily flights from Tokyo Haneda. With only 5 rotations per day, the current schedule requires only 2 airplanes, both of which return to Narita at 21:25.
A320-214 (6073, B-1839), ex-(B-513L) and A320-214 (6216, B-1892), (SMBC) Aviation Capital leased.
September 2014: News Item A-1: Spring Airlines (IATA) Code: 9C) (CQH) launched a non-stop service from Hangzhou (HGH) to Bangkok Suvarnabhumi (BKK), Thailand from September 9, marking the 1st non-stop flight linking the 2 cities and (CQH)'s 8th route departing from Hangzhou.
The non-stop Hangzhou - Bangkok service is offered 3x-weekly on Tuesdays, Thursdays, and Saturdays, with Airbus A320 airplanes. The Bangkok-bound flight 9C8773 takes off from Hangzhou Xiaoshan International Airport (HGH) at 9:20 pm and arrives in Bangkok at 1:35 am the next day; while the return flight 9C8774 departs from Bangkok at 2:35 am and lands in Hangzhou at 6:30 pm.
Passengers in Hangzhou flying to Bangkok, have taken connection flights via Hong Kong, Guangzhou, and Fuzhou, taking about 7 - 9 hours. The opening of non-stop flights shorten the whole journey to only 4 hours, greatly facilitating travel between the 2 regions and saving time and costs for passengers.
The 2,712 km sector will be flown by (CQH)’s A320s and faces no direct competition. Bangkok becomes the 24th international destination to be served non-stop from China’s 10th busiest airport, which last year handled 22.1 million passengers, up +15.7% on 2012. Also as a result of this new route, Bangkok’s main airport is now connected to 20 airports in China.
In addition, (CQH) launches a non-stop service from Shanghai to Seoul, South Korea on September 23. The scheduled service operates 4x-weekly, with a discount airfare as low as 99 yuan for a single-trip. Local citizens, who purchase the non-stop flights, can get a free express train ticket from Hangzhou to Shanghai.
According to relevant statistics, the number of passengers departing from Hangzhou accounts for about 23.2% of the total, ranking top among Spring Airlines (CQH)'s 15 destinations in East China.
News Item A-2: On August 26, 2014, Spring Airlines (CQH) received an official approval from Eastern China Regional Administration of the (CAAC) for using class 1 electronic flight bag (EFB) in its fleet. After several months' verification testing and risk management, (CQH) is capable of operating (EFB) in an all-around way, effective on September 1, becoming the 3rd Chinese airline operating class 1 (EFB).
(EFB) is an electronic device in the cockpit to provide various handbooks, documents, flight routes, flight notice, weather information and others to the flight crew (FC). It is equipped with basic calculation function and has a strong expedition ability, which will help create the "paperless cockpit." The application of (EFB) could achieve electronic flight documents, and it plays a vital role in reducing operation costs, enhancing operation efficiency, improving safety, and so on.
Launched on February 27, 2013, the (EFB) program entered into verification period on December 1, 2013 and received the final government approval on August 26, 2014. It is forecasted that the application of (EFB) will bring millions of economic benefit to (CQH) and uncountable benefit on flight safety and operation efficiency.
October 2014: News Item A-1: Looking back at its progress, Spring Airlines (CQH) commenced operations in 2005 with 2 airplanes and >10 domestic routes in the initial year and expanded to 39 A320 airplanes and 64 domestic and international routes in 2013. Its passenger throughput and turnover increased to 10.55 million and 16.49 billion passenger-kms in 2013 from 180,000 and 234 million passenger-kms in 2005, with a passenger load factor of about 94% LF and airplane utilization of 11 hours, becoming the largest domestic private airline by passenger numbers and turnover and a leading budget airline in Greater China. As of the end of 2013, (CQH) operated >1,260 scheduled flights connecting >40 domestic destinations, as well as Hong Kong, Macau, Taipei, Kaohsiung, and some international destinations. (CQH) mainly operates point-to-point medium-haul flights within 5 hours from its bases and hubs. As of the end of 2013, (CQH) ran 51 domestic routes, 5 regional routes to Hong Kong, Macau and Taiwan, and 8 international routes.
(CQH) generated operating revenue of 6.56 billion yuan, 5.63 billion and 4.46 billion yuan in 2013, 2012 and 2011, respectively. Operating profits were +432.61 million yuan, +309.16 million yuan and +146.25 million yuan, with an increase of 123.45 million yuan, 162.91 million yuan and -350.59 million yuan from a year earlier. Net profits were +732.23 million yuan, +624.59 million yuan and +483.19 million yuan, increasing +107.65 million yuan, +141.40 million yuan and +6.74 million yuan from the previous year.
Subsidies amounted to 522.17 million yuan, 504.63 million yuan and 485.69 million yuan in 2013, 2012 and 2011, accounting for 52.90 %, 59.89% and 74.50% of its profits, respectively. The subsidies for routes were 414.08 million yuan, 365.97 million yuan and 389.50 million yuan, accounting for 79.30%, 72.52% and 80.20% of the total subsidies.
By the end of 2013, (CQH) had assets worth 7.65 billion yuan and shareholders' equity amounted to 2.74 billion yuan, with a debt-to-asset ratio of 63.71%.
Spring Airlines (CQH) had a market share of 2.2%, 2.4% and 2.9% in 2010 - 2012 by passenger numbers. (CQH)'s market share was 2.34% by seat capacity on the domestic routes in the winter schedule 2013. In the week of April 14 - 20, 2014, (CQH) had a nearly 20% market share in the seat capacity on international routes among China's medium and low-cost carriers.
News Item A-2: As one of the 1st private airlines approved in China, Spring Airlines (CQH) positioned itself as a carrier offering low-cost carrier (LCC) operations. It operates domestic, regional and international passenger and cargo services and other air transportation businesses. (CQH) has been offering domestic passenger services since its foundation, and started international services and Hong Kong, Macau services from 2010. It accelerated its regional and international expansion pace from 2011, and has launched >10 regional and international routes from Shanghai and Shijiazhuang to Hong Kong, Macau, Taiwan, and destinations in Northeast Asia and Southeast Asia.
Different from full-service carriers, (CQH) has attracted a large number of self-paid travelers who are sensitive to prices and business travelers who pursue a cost-effective flight experience. Since its maiden flight in 2005, (CQH) has expanded its fleet size to 39 airplanes by the end of 2013 with a network of 64 domestic and international routes, becoming the largest private airline in China by passenger carried and turnover, as well as a leading budget airline in Greater China.
In the next few years, (CQH), benefiting from the continuous growth of the Chinese economy, the constantly improved consumption level and the popularity of air travel will continue to consolidate its low-cost carrier (LCC) operation and competitiveness, further expand its operation scale, to realize its strategic goal of "becoming a competitive international and popular budget airline, providing customers with safe, cheap, as well as punctuate convenient and warm flight experience."
Under the premise of guaranteeing flight safety, (CQH) strictly controls its cost and adheres to its (LCC) operation mode. It achieves (LCC) operation by borrowing foreign budget airlines' experience and making full use of its current assets.
(CQH)'s operation mode can be categorized into "Two Singles", "Two Highs" and "Two Lows". The "Two Singles" refers to single airplane type and single class configuration.
Single airplane type: (CQH) operates an all-Airbus fleet of A320 airplanes powered by (CFM56-5B) engines. Using a single airplane type and engine can reduce airplane purchase and leasing costs, as well as the cost of optional equipment and spare material through centralized purchasing, cut engine overhaul cost through guaranteed repairs of engines and (APU)s, reduce the number of spare engines, lower the management cost of purchasing, repairing and stocking materials through intensive material storage, as well as reduce repair management difficulties and lessen the complication of training for pilots (FC), maintenance technicians (MT)/engineers and flight attendants (CA).
Single class configuration: (CQH) configures a single cabin of economy (Y) class, with no first (F) class or business (C) class. As a result, its A320S can offer +15 to +20% more seats than other airlines which employ 2-class cabins, reducing effectively its cost per (ASK).
"2 Highs" means high load factor and high airplane utilization rate.
High load factor: (CQH)'s load factor had been higher than any other Chinese airlines from 2006 and 2012. (CQH) maintained an average load factor of 94.35% LF, 94.11% LF and 93.54% LF in 2011, 2012 and 2013, about +14% points higher than 79.6% LF, Chinese airlines' average load factor in 2012. On the one hand, high load factor brings preferential landing fees for the airline, thus reducing its cost per (ASK). On the other hand, (CQH) brings a large amount of travelers to the local airports, and increases their passenger throughput, thus the airline can get support from the local airports and governments, such as landing fees remission and route subsidies, and so on.
High airplane utilization rate: (CQH)'s airplane utilization rate averaged 11.38 hours, 11.35 hours and 11.63 hours in 2011, 2012 and 2013, about +2 hours higher than the industry's 9.25 hours in 2012. In 2013, (CQH)'s fixed costs took up 29% of its operating costs. The fixed costs include depreciation expenses and leasing fees of fixed assets such as airplane and engines, labor costs, except hourly payment, insurance fees of airplanes and engines, etc. Accordingly, under the premise of guaranteeing flight safety, the fixed cost per (ASK) can be reduced through arranging routes reasonably and appropriately improve the airplane utilization rate.
The "Two Lows" refers to low marketing costs and low management costs.
Low marketing costs: E-commerce direct sales have always been (CQH)' main marketing channel. On the 1 hand, (CQH) draws large quantity of customers to book tickets on its website through releasing all kinds of promotions. On the other hand, it actively promotes mobile internet sales and extends e-commerce direct sales. Up to 83.42%, 84.22% and 84.52% individual travelers booked tickets through e-commerce direct sales channels (including direct sales on website and mobile internet) in 2011, 2012 and 2013. The commission rate the airline paid to agents averaged 3.8% during the reporting period. As a result, website direct sales and mobile internet direct sales saved about -200 million yuan for (CQH) in 2013. Meanwhile, (CQH) has a distribution and seat selection system independent from TravelSky, reducing the agent commissions and other fees in air ticketing to the maximum, and enhancing (CQH)'s marketing independence and channel control.
Besides, (CQH) has been concerned and reported by media for its special operation mode and creative services, and wins high brand awareness for itself with low marketing expenses. Its unit marketing cost averaged 0.008 yuan per seat-kilometer in 2011 - 2013, lower than 0.04 yuan per seat km of the A-share airlines.
Low management costs: Under the premise of guaranteeing flight safety, operation and service quality, (CQH) tries to reduce its management costs through making full use of the 3rd party's resources and services at the local airports. At the same time, it reduces management personnel's labor costs and expenses through strict budget management, scientific performance appraisal and appropriate control of personnel-to-aircraft ratio. (CQH)'s unit management cost was 0.010 yuan per seat-km on average in 2011 - 2013, compared with 0.017 yuan per seat-km for A-share airlines in the same period.
As a low-cost carrier (LCC), (CQH) still lags behind the overseas outstanding budget airlines in innovative operation.
News Item A-3: Spring Airlines (CQH) has been approved to launch an initial public offering (IPO) to fund its rapid fleet expansion by the end of the year. (CQH) plans to circulate 1 billion shares in Shanghai Stock Exchange and collect about CNY2.5 billion/$41 million to purchase nine Airbus A320s and three A320 simulators.
(CQH) currently operates a fleet of 43 Airbus A320s, which it plans to expand to 100 airplane by 2018.
(CQH) suspended plans to launch an (IPO) earlier this year due to an internal report that (CQH)’s profits in proportion to local government subsidies were too high.
(CQH), the most profitable (LCC) in China, has maintained a consecutive profit record since it was established in 2004. It earned a net income of +CNY480 million, +CNY620 million and +CNY730 million in 2011, 2012 and 2013, respectively. In the 1st half of 2014, Marketing Director Zhang Wu’an reported a +10% growth in net profit due to the increase of air fares and cost reduction, although he did not reveal exact figures.
News Item A-4: Spring Airlines (CQH), the Shanghai-based budget carrier said that it will begin recruiting Taiwan flight attendants (CA) for the 1st time.
The recruitment of Taiwan cabin crew (CA) marks the one-year anniversary of the start of (CQH)'s maiden voyage across the Taiwan Strait, said Wang Shuyu, Manager of (CQH)'s Taiwan branch.
As the only mainland budget airline that provides direct flights across the Strait, Spring Airlines (CQH) launched its regular air route linking Shanghai and Kaohsiung last October.
(CQH) added a flight route between Shanghai and Taipei last December, and opened another regular air route in April linking Taipei and Shijiazhuang, capital of the northern province of Hebei. "By having Taiwan staff on board, we can provide an exceptional service experience for cross-Strait passengers, making them feel really at home," Wang said.
(CQH) will not set restrictions on gender, age or specialty in its recruitment policy and holds no employment quotas for Taiwan workers.
As long as a candidate meets the essential requirements and has a passion for aviation, he or she can be hired as a member of (CQH)'s cabin staff (CA), according to Wang.
It is expected that the 1st batch of Taiwan flight attendants (CA) will start to serve on flights linking Taipei, Kaohsiung and mainland cities as soon as next year, he added.
Spring Airlines (CQH) has carried >130,000 passengers flying across the Strait over the past year.
News Item A-5: Spring Airlines (CQH) has signed an agreement with Airbus (EDS) for sharklet retrofit of its A320 airplanes in operation. (CQH) will be the 1st Chinese airline to perform retrofit of the devices, which are said to improve the aerodynamics of the A320 family and cut fuel burn and emissions by up to -4%.
In September 2013, (CQH) took delivery of its 1st A320 with sharklets, which are also said to increase mission range by up to +100 nautical miles or increase payload capability of up to +450 kilograms. After >8,500 accumulated flight hours, (CQH) decided to select the wing tips for all new deliveries and expand the option to its in-service fleet.
December 2014: News Item A-1: Spring Airlines (CQH) has received formal approval by the China Securities Regulatory Commission to hold an initial public offering (IPO) next year to fund its rapid fleet expansion. (CQH) plans to circulate 1 billion shares in the Shanghai Stock Exchange and collect about CNY2.5 billion/$413 million to purchase 9 Airbus A320s and 3 A320 simulators.
According to Spring (CQH) chairman, Wang Zhenghua, (CQH) operates 46 A320 airplanes and plans to introduce >10 airplanes. It is expected to expand its fleet to 100 airplanes by 2018.
(CQH) spokesperson, Zhang Wu’an said (CQH)’s net profit is expected to climb more than >10% this year despite the slowdown of China’s economic growth. This is due to the robust growth of market demand on international routes and high load factor of its "SpringPlus" business economy (PY) class.
“This year, the ratio of operating revenue has risen to 22% from 8% on international routes and the yield on international routes is higher than that on domestic routes.” Zhang Wu’an noted, adding the sharp increase of load factor on SpringPlus also contributed to the (CQH)’s much-improved performance.
News Item A-2: It is inevitable that more low-cost carriers (LCC)s will emerge in the China market next year, said Wang Zhenghua, Founder & Chairman of Spring Airlines (CQH). "We are not afraid of competition. It is not only good for the industry but it motivates for our cost-cutting strategy," Mr Wang stated. Low-cost is a concept, a spirit, a culture that has to trickle from the senior management all the way down to the lower staff levels.
Recently, (CQH) revealed its major operation quota before listing on the Shanghai Stock Exchange, including figures on cost control, aircraft daily utilization, and passenger load factor. (CQH) registered an annual profit growth of +11.16%, +11.09% and +10.83% in 2013, 2012, and 2011, respectively, which were higher than the average level in the industry. The unit administrative expense stood at 0.008 yuan/km per person, 0.009 yuan/km per person and 0.012 yuan/km per person in the past 3 years, lower than that of the industry.
Besides, (CQH) now maintains an average passenger load factor of 94% LF with every airplane using 11 hours per day, in comparison of the industry mean level of 79.6% LF and 9.25 hours in 2012. What's more, falling oil price provided some breathing room for airlines in recent months, bolstering profits and allowing lower air fares. As it is predicted by (IATA), Brent oil will settle at US$85 a barrel in 2015. If so, that would be the 1st time for global fuel price declining to US$100 per barrel since US$79.4 per barrel in 2010.
(CQH) expects to list on the A-share market in January, 2015, raising money to fund its fleet expansion and cut costs. Meanwhile, innovation on additional services is another concern for (CQH) in 2015. In addition, (CQH) has committed to attracting tourists to expand its business traveler market. The budget airline sold 210,000 premium economy (SpringPlus) (PY) seats in 2014, up +60% from 130,000 in 2013.
News Item A-3: Spring Airlines (CQH) plans to launch an airplane leasing business in Shanghai’s Pilot Free Trade Zone for its rapid fleet expansion. “The launch of this airplane leasing company is mainly to serve our own needs,” (CQH) spokesperson, Zhang Wu’an said. “(CQH) aims to expand its fleet to 100 airplanes by 2018 and we can reduce the payments for airplane purchasing by taking advantage of the policies implemented in Shanghai’s Pilot Free Trade Zone.”
As the most profitable low-cost carrier (LCC) in China, (CQH) in October received approval to launch an initial public offering (IPO) on the Shanghai Stock Exchange to collect CNY 2.53 billion/$413 million) to purchase 9 Airbus A320s and 3 A320 simulators.
Currently, (CQH) operates a single fleet of 45 Airbus A320 airplanes. It is scheduled to take delivery of >12 new airplanes annually in the next 4 years. “We would use our own airplane leasing company to introduce more new airplanes in the coming days, although we would still carry out previously signed airplane purchase deals,” Zhang said. “It would be more flexible to use a capital operation [launch of its airplane leasing company] to meet capacity increases, when the market is growing while leasing out aircraft to reduce management risks when the market is not good,” Zhang added.
January 2015: News Item A-1: Juneyao Airlines (JYA) will launch an initial public offering (IPO) to fund its rapid fleet expansion, according to Juneyao Group President, Wang Junhao.
(JYA) plans to purchase 7 A320s and 2 backup engines by launching an (IPO) on the Shanghai Stock Exchange. (JYA) aims to expand its fleet to 50 airplanes this year, and double its fleet to 100 by 2020. It currently operates 38 airplanes with an average age of >3 years.
“The pilot (FC) shortage is quite severe in China’s airline industry and thus we have introduced >100 foreign pilots (FC) to maintain sustainable growth [to match fleet expansion],” Wang noted.
Separately, Spring Airlines (CQH) is also expected to launch an (IPO) January 21 to raise around CNY2.5 billion/$413 million to purchase 9 A320s and 3 A320 simulators.
According to (CQH) Chairman, Wang Zhenghua, (CQH) operates 46 A320s and plans to introduce >10 airplanes. It is expected to expand its fleet to 100 airplanes by 2018.
(CQH) formally launched an initial public offering (IPO) on the Shanghai Stock Exchange on January 21st to fund its rapid fleet expansion. The Shanghai-based low-cost carrier (LCC) carrier said in December it would collect CNY2.5 billion/$413 million by circulating no more than 100 million A shares to purchase 9 Airbus A320 airplanes and 3 A320 simulators.
Currently, (CQH) operates a single fleet of 48 A320s on >70 domestic and international routes. It has established 5 domestic bases in Shanghai, Hangzhou, Kunming, Shijiazhuang, and Shenyang. This year it plans to introduce 10 new A320s and expands its fleet to 100 airplanes by 2018.
The issue price is CNY18.16 per share, which is much higher than China’s big 3: Air China (BEJ), China Eastern (CEA), and China Southern Airlines (GUN) at <CNY10 per share. Industry analysts credited (CQH)’s “better financial performance, higher load factor and airplane utilization” as the main reason for the higher share price.
(CQH) has maintained a consecutive profit record since it was launched in 2004. It reported a net income of +CNY483 million, CNY625 million and 732 million in 2011, 2012 and 2013, respectively. It also earned a net profit of +CNY270 million in the 1st half of 2014, when other Chinese carriers posted profit declines. (CQH)’s net income increased >10% in 2014.
This year, (CQH) is committed to international expansion. According to Chairman, Wang Zhenghua, it will mainly focus on the Northeast Asia and Southeast Asia markets. It will also “do its best” to open a new Shanghai - Tokyo route.
News Item A-2: 2 A320-214s (6318, B-1671; 6329, B-1670), ex-(B-503L & B302L), (ICBC) Leasing leased.
February 2015: News Item A-1: Spring Airlines (CQH) has added another international route from Shanghai Pudong (PVG). (CQH) has started 4x-weekly flights on the 3,487 km route to Krabi (KBV) in Thailand. The service operates through the night, departing Krabi at 02:10 in the morning. The route is already served by Juneyao Airlines (JYA) and Shanghai Airlines (SHA) with daily flights. (CQH) now serves 32 destinations non-stop from Shanghai’s main airport, of which 16 are in China. The 16 international destinations served are spread across seven countries with Japan having the most routes at 5. Krabi becomes (CQH)’s 4th destination in Thailand following Bangkok, Chiang Mai, and Phuket.
News Item A-2: Spring Airlines (CQH) has taken delivery of a new A320 on lease from (ICBC) Financial Leasing, a leasing company owned by the Industrial & Commercial Bank of China (ICBC). The newly received airplane brings (CQH)’s total Airbus A320 fleet to 50.
SEE ATTACHED - - "CQH-2015-02 - 50TH A320.jpg AND "CQH-A320 - 50TH 2015-02.jpg."
March 2015: News Item A-1: Spring Airlines (CQH) reported a net profit of +CNY884.2 million/+$144 million in 2014, up +20.8% over a net income of +CNY732.2 million in 2013.
Full-year operating revenue jumped +11.6% to CNY7.32 billion, while operating expenses rose +9.3% to CNY6.24 billion.
(CQH), the Shanghai-based low-cost carrier (LCC) credited lower fuel prices and domestic market growth as the main reason for the improved performance.
Passenger boardings increased +8.5% to 11.5 million with an average load factor of 93% LF.
(CQH), which has an all-Airbus A320 fleet, took delivery of 7 of the type last year, expanding its fleet to 46.
Looking forward, (CQH) plans to introduce +14 more A320s and expand its fleet to 60 at the end of 2015 and to 100 by 2018. (CQH) is targeting 3.6 million passengers in 2015.
Spring (CQH) predicts China’s economic growth will continue, which will enable it to continually expand. It plans to add Shenzhen as another hub in the South China to further explore the international market in Japan, Korea and other northeast Asian countries this year.
However, (CQH) warns that “challenges still remain, which include possible slowdown of domestic economic growth, fluctuation of fuel price, pilots (FC) shortage, and increasingly fierce competition from other domestic peers and high-speed rail.
News Item A-2: Spring Airlines (CQH) plans to establish an overseas operating base in Osaka and open 5 new routes to Japan at the end of March. The new routes include Shanghai - Hokkaido Asahikawa, Chengdu - Osaka, Zhengzhou - Osaka, Xi’an - Osaka and Jinjiang - Osaka.
(CQH), the Shanghai-based low-cost carrier (LCC) also plans to allocate more airplanes to Osaka and increase the number of destinations to more than >20 with 100 weekly departures. (CQH) currently operates 6 routes to Osaka, comprising Shanghai - Osaka, Chongqing - Osaka, Wuhan - Osaka, Tianjin - Osaka, Lanzhou - Osaka and Qingdao - Osaka.
“We attach great importance to the Japan market,” (CQH) spokesperson Zhang Wu’an said. “We will continue to further explore the markets of Japan, Korea, Southeast Asia, and Hong Kong, Macau, and Taiwan in the coming days.”
(CQH) also launched its 1st overseas (LCC), Spring Japan last year.
2 A320-214 (1686, B-6320; 6524, B-1657), deliveries.
April 2015: See new video - - "CQH-FLIGHT EXPERIENCE" - -
July 2015: News Item A-1: Spring Airlines (CQH), China's largest low-cost carrier (LCC), is expected to report a significant lift in half-year earnings, due to lower fuel prices and growing passenger numbers.
The 1st-half net profit attributed to shareholders rose by between 130% and 150% from the 270.8 million yuan achieved in the same period last year, (CQH) said to the Shanghai Stock Exchange.
(CQH) credited lower fuel prices and robust market demand growth as main reasons for the much-improved performance.
Meanwhile, (CQH) announced the plan to raise up to 4.5 billion yuan in private share placements to fund internet projects and fleet expansion.
It intends to buy 21 Airbus A320s and will stick to its Northeast Asian strategy, seeking improved penetration into markets such as Japan, South Korea, and Taiwan, (CQH) said.
(CQH) had halted trading in its shares this month, pending the private placement announcement. They are due to resume trading on July 21.
News Item A-2: "Spring Airlines (CQH) Turns 10 Years Old: Regulatory Support & Initial Public Offering (IPO) Lend Support to Bolder International Expansion" by (CAPA), July 20, 2015.
There are few better birthday presents than a near guarantee that the next 10 years should be momentously better than the 1st 10. Spring Airlines (CQH) marked its 10th anniversary on July 18, 2015, having amassed a fleet of 50 A320s and passenger volume of 11.5 million in 2014. (CQH) is China's most notable low cost carrier (LCC), yet even these figures represent under-achievement in terms of what should be possible. This is scarcely the fault of (CQH), which planned for 100 aircraft in 2015 but was repeatedly held back by regulator (CAAC).
Now the (CAAC) holds (CQH) up as a model for efficiency and success, and is welcoming other local (LCC)s. Foreign carriers are increasingly taking note of (CQH)'s practices as it has the strongest low cost position in what will soon be the world's largest market. (CQH) has received approval to double its fleet to 100 aircraft in 2018.
The next few years will be characterised by increased international operations: (CQH) plans to end 2015 with 30% of seat capacity in international markets, up from about 15% in 2014. This comes as the (CAAC) pushes for international growth and Spring feels emboldened, having finally successfully completed its (IPO).
(CQH) has opened bases around Japan and Korea to allow it to link foreign cities with more Chinese cities than if it relied only on local Chinese bases. Recent traffic rights to Taipei and Tokyo Haneda are modest victories but loom large in significance. Seoul awaits as the next large market - and after that, probably long haul services.
(CQH) turns 10 with a fleet of 50 A320s. (CQH) had planned a fleet of 100 in 2015 but had to reduce this as the (CAAC) did not give approval, effectively to protect the incumbent state-owned carriers. (CQH) and other private carriers have at times had aircraft ready for delivery into China but delayed for months.
It is valuable to compare (CQH)'s fleet growth to a select group of other major (LCC)s that have launched (or in the case of AirAsia (ASW), re-launched) since 2000. Wizz Air (WZZ) marked 10 years with 46 aircraft, while AirAsia (ASW) amassed 53 aircraft and Jetstar Australia (IMU) 59 (and all 3 operate in markets a fraction the size of China).
In a more equal comparison for market size, Virgin America (VUS) reached 50 aircraft in 6 years (although this may have been too much capacity for it) while JetBlue (JBL) hit 50 after around 5 years. flydubai (FDB) is expected to reach 50 aircraft in 7 years. Korea's Jeju Air (JJA), which battles traffic rights and Korean government protectionism, will operate about 20 aircraft as it turns 10.
Spring (CQH) has received approval to grow to 100 aircraft in 2018. After taking 50 aircraft in 10 years, (CQH) will take its next 50 over 3.5 years. But this too is a compromise, and (CQH) would have liked to have >100 aircraft in 2018.
(CQH)'s fleet at the end of 2015 could be as high as 60. (CQH) will start to receive Airbus' new configuration in the A320 that allows for an extra 6 seats, bringing capacity to 186Y. (CQH) is the launch customer in China for this.
(CQH)'s average fleet age is 3.2 years. There are no aircraft officially on order, although (CQH) disclosed in late-2013 it was negotiating for 30 aircraft, a mixture of A320ceos and A320neos. That figure will likely be revised upwards. Depending on regulatory support, (CQH) could make an order on the magnitude of other (LCC) orders that have grabbed headlines.
9 Air (9AL), a Guangzhou-based (LCC) that commenced services in January 2015, was able to make a commitment for 50 aircraft (> (CQH) ever has at 1 time, indicating (CQH)'s order could surpass that figure in the new environment. (CQH)'s Chinese operation only flies the A320, while its Japanese unit, still in the start-up phase, has a handful of 737-800s that were received new.
(CQH) carried 11.45 million passengers in 2014, posting growth of "only" +8.5% (the lowest growth rate in its history). In 2014, (CQH) carried only an additional +900,000 passengers, its lowest net additional volume after adding 590,000 passengers in 2008.
Since 2009, (CQH) has added 1.25 - 1.5 million annual additional passengers. Traffic in five months of 2015 is up +16% year-on-year. If (CQH) maintains this growth, it will end 2015 with 13 million passengers.
Of Spring's 11.45 millionj passengers in 2014, 9.8 million were in the domestic market and 1.65 million in the regional/international market. This represents a share of 14% for international in 2014. (CQH) plans to bring international's share of seats to 30% by the end of 2015. (CQH) is already at 25% in July 2015.
The shift comes for a few reasons: the (CAAC) is encouraging airlines to fly abroad; airports may give preference to international flights for scarce slots; outbound demand is naturally occurring (there were over >100 million outbound Chinese visitors in 2014; and a projected 500 million within 5 years) and key short-haul markets like Japan that (CQH) can serve with narrow body aircraft are seeing currency changes in favor of China.
(CQH) also now feels emboldened. Having finally achieved its (IPO) earlier in 2015, it has management bandwidth to look at new growth markets but also feels it can achieve the growth. Although (CQH)'s international flying is still short haul and with its existing fleet, the nature of the business is different enough.
Accounting for 35% of (CQH)'s international seats, Japan is the largest market for (CQH). (CQH) serves seven Japanese points from 12 Chinese cities non-stop. Some of the flights operate overnight, allowing (CQH) to boost aircraft utilization, as China does not permit domestic red-eye flights.
(CQH) and Osaka Kansai airport have a partnership that explains (CQH)'s focus on Osaka Kansai (the airport is the gateway to the popular Kyoto region). Osaka Kansai especially benefits from duty free purchases, which tend to be higher from Chinese nationals than any other. (CQH) considers Osaka Kansai to be especially proactive (whereas Airports of Thailand is only starting to be, in (CQH)'s view).
(CQH) currently has 52 weekly flights to Kansai from 9 Chinese cities (non-stop) but expects to grow this within 5 years to 100 weekly flights from 20 Chinese cities, all from (CQH)'s China business and not potential future service from Spring Airlines Japan. This target may prove conservative; in March 2015, (CQH) linked Kansai to only 4 Chinese cities.
Nagoya's 4 destinations may grow to 8 in the short-term, according to (CQH), which plans to grow the current 14 weekly flights to 28 in autumn 2015, and 42 by the end of 2015.
(CQH)'s schedule indicates where growth may occur: for example, Nagoya receives service from cities (Harbin, Hefei) that Osaka Kansai does not. Meanwhile, Japanese cities that only have service from Shanghai Pudong could see service added from other Chinese points.
(CQH)'s scheduling allows it to serve Japanese points from more Chinese cities since it has an effective base (a "mini-hub" as (CQH) calls it) at Osaka Kansai, where it overnights 3 airplanes. If (CQH) served Japan only from its Chinese bases, it would be limited in city pair combinations. But with a base in Kansai, (CQH) can fly from Kansai to Chongqing and back to Kansai, and then from Kansai to Qingdao or Xi'an and back to Kansai. Relying on Chinese bases may mean (CQH) could not serve Kansai from Chinese points, where it does not have a base. This flying pattern is seen at other international focus cities: (CQH) bases 1 aircraft at Jeju, for example.
The large number of Japanese destinations allows (CQH) to have this scheduling pattern that facilitates so many city pair combinations. This can be applicable to Korea and Thailand too. (CQH) counts Jeju and Osaka Kansai as hubs along with Chinese cities of Hangzhou and Shijiazhuang.
There are for now only limited synergies with cross border joint venture Spring Airlines Japan, in which (CQH) (China) has a minority stake. Spring Airlines Japan's main goal is to fly from Tokyo to Chinese cities where China cannot receive Chinese authority to do so. Spring Airlines Japan will also serve other international markets as well as, by necessity, the domestic Japanese market.
(CQH) and Spring Airlines Japan have 2 ports in common: Saga and Takamatsu. Spring Airlines Japan serves those 2 cities from Tokyo Narita but Spring (CQH)'s website cannot sell non-tag connecting flights, and in any event, the limited service between the city pairs means schedules do not align, and in some instances it is not possible to make a same day connection.
(CQH)'s share of the China to Japan market has grown from 2% in July 2014 to 7% in July 2015. Its growth comes as Chinese competitors grow in the market to new record highs.
(ANA) is keeping capacity flat, but as a result of Chinese airlines growing, (ANA)'s market share will decrease from 24% in July 2014 to 18% in July 2015. (JAL) is shrinking by about -14%, and its market share will decrease from 15% to 10%.
In line with growth in the market, Chinese visitors to Japan reached a record high of 2.4 million in 2014. Chinese visitors to Japan in 5 months 2015 are up a remarkable +45%, following hiccups in earlier years, largely due to diplomatic reasons.
Korea is Spring Airlines (CQH)'s 3rd-largest international market, accounting for 17% of seats. But (CQH)'s Shanghai Pudong - Jeju route is its 2nd-largest (after Hong Kong) with 19 weekly flights.
Jeju is (CQH)'s only destination in Korea. (CQH) also has services to Jeju from Harbin, Shijiazhuang, and Tianjin. Jeju, an island south of the Korean peninsula, is notable as it is visa free for Chinese nationals, making it an easy and popular destination.
Thailand is (CQH)'s 2nd-largest market. Although Thailand is Asia's most popular tourism market, (CQH) expects Japan to be larger for it than Thailand. (CQH) serves 3 cities in Thailand: Bangkok, Chiang Mai and Phuket. The China to Thailand market is fragmented with 5th freedom operators (Sri Lankan), a number of Thai charter carriers and then local scheduled capacity, including from Thai AirAsia (THA), which is targeting China.
(CQH) serves Bangkok from its Shanghai Pudong hub as well as Chengdu, Hangzhou, Nanchang, and Shijiazhuang. Chiang Mai, Krabi, and Phuket are only served from Shanghai Pudong.
(CQH)'s international network also includes Hong Kong, Macau, Taiwan, and Cambodia (Siem Reap). The next development is 4x-weekly flights from August 2015 between Shanghai Pudong and Tokyo Haneda ((CQH)'s 1st entry in Tokyo on its Chinese licence. (CQH) will use evening hour slots at Haneda, which means its service will return to Shanghai Pudong at 3:25 am, but demand for Tokyo should be able to make the service work. (CQH) joins Japanese (LCC) Peach Aviation (PCA) in having low cost night flights at Tokyo Haneda, when the airport's slots are not fully utilized. Also launching Haneda service is Juneyao (JYA) full service but like (CQH) privately owned and based in Shanghai as well. (JYA) is launching with 4 weekly flights as well, and both presumably would like more frequency but await regulatory approval.
(CQH) hopes regulatory changes will allow it to serve Seoul Incheon. (CQH)'s only Korean destination at present is Jeju. As with Osaka Kansai, (CQH) could serve Seoul from multiple Chinese cities and have a base there. (CQH) sees its Jeju network rebounding from what has largely proven a short-lived crisis over the (MERS) outbreak in Korea.
Its Kansai base will continue to grow, while Nagoya is being made into a mini hub as well. Like Kansai, Nagoya is eager for (LCC) flights, especially international services. Nagoya is the presumed base for AirAsia Japan (Mk II), expected to launch in 2016.
(CQH) will also seek further synergies with its Japanese unit, but also grow it in its own right. Spring Airlines Japan is waiting on regulatory approval for Korean routes, which will bring much needed improvements to aircraft utilisation and overall financial performance at the Japanese unit.
In Southeast Asia, one development that stands out is (CQH) looking to re-enter the Shanghai - Singapore market, after its 1st attempt failed due to problems with visas for Chinese.
(CQH) is largely flying where Chinese passengers want to go, and is learning about foreign markets and building international experience on the back of China's outbound travel demand. For all that (CQH) has achieved domestically, it sees itself (like other Chinese airlines) facing a learning curve on international flights. (CQH) following travel demand is somewhat of a change from other (LCC )s that build up new markets, effectively having the destination before passenger interest. But with the potential growth profile of Chinese travel, many things will be done differently in this market.
By the end of 2015, (CQH) hopes to have its 1st interline in place as it grows a partnership network to include code shares. (CQH) sees opportunities because of its position (it believes Chinese airlines are not giving international partners good rates for domestic connections. One foreign airline said a Chinese airline felt it could fill flights without connections from other airlines, so there was no pressing need to help partners.
(CQH) has spent much of its 1st 10 years in something akin to a regulatory no man's land, neither shunned nor welcomed. That dynamic has changed to become a warm embrace.
(CQH) has benefitted from that but undoubtedly wants more (further traffic rights and faster fleet growth, for example). (CQH)'s next 10 years will likely be marked by greater penetration of the domestic market, but for many the most intriguing is the possibility of (CQH) launching long haul (LCC) flights. Given market trends among its Asian peers, there appears to be some inevitability in that, but (CQH) would likely start 1st with domestic wide body flights on congested routes and also regional Asian wide body services.
Although there are no explicit wide body plans, (CQH) has shown it can adapt and move very quickly. As China welcomes more local (LCC)s, (CQH)'s advantage will be its early start, agility and ultra low cost mindset. Those are often the missing factors that challenge and sometimes doom (LCC)s (and full service airlines).
News Item A-3: "Spring Airlines (CQH) Aims to Raise US$725 Million to Fund Expansion" by Chen Aizhu, & Meg Shen, "Reuters" July 20, 2015.
Spring Airlines (CQH) plans to raise up to 4.5 billion yuan/US$724.7 million in private share placements to fund internet projects and the purchase of new aircraft, it said on July 20.
(CQH), which also announced a significant jump in half-year earnings, said it intends to buy 21 Airbus A320 jets and will stick to its NE Asian strategy, seeking improved penetration into markets such as Japan, South Korea, and Taiwan.
1st-half net earnings rose by between +130% and 150% from the 270.8 million yuan achieved in the same period last year, (CQH) said, citing lower fuel prices and growing passenger numbers.
(CQH) had halted trading in its shares this month, pending the private placement announcement. They are due to resume trading on July 21.
(CQH) is not alone in stepping up efforts to tap China's booming air travel market. Shenzhen Airlines (SHZ) has struck a US$4.3 billion deal to buy 46 Boeing 737s, parent Air China (BEJ) said last month, as the group looks to fly more routes. (US$1 = 6.2095 Yuan).
News Item A-4: "Spring Airlines (CQH) Receives Designation for China-Russia Routes" by (ATW) Polina Montag-Girmes, July 20, 2015.
Chinese aviation authorities have designated Spring Airlines (CQH) on routes between China and Russia, though the Russia’s Federal Air Transport, Rosaviatsia, did not identify the specific routes.
Despite the downward trend in Russian international traffic in the 1st half, several airlines have announced new routes between the 2 countries.
Russia’s "I-Fly Airline (FLY)," which specializes in charter flights to leisure destinations, launched 3x-weekly A330 scheduled services from Moscow Vnukovo to Xian, Tianjing, Shenyang, on April 20. Transaero (TRX) started 4x-weekly Boeing 767-300 services from Saint Petersburg Pulkovo International to Shanghai from June 14 through October 2015. On July 16, China Southern Airline (GUN) launched Lanzhou - Urumqi - Saint Petersburg 4x-weekly 757-200 services.
(CQH) plans to add Shenzhen as another hub in South China to further explore the international market in Japan, Korea, and other Northeast Asian countries this year. In addition, (CQH) is expanding in Japan.
August 2015: News Item A-1: Spring Airlines (CQH) has reported a net profit of +CNY619.5 million/+$97 million for the 1st half of 2015, up +129% over the +CNY270.8 million for the same period the previous year.
Operating revenue was up +15% to CNY3.95 billion, while operating costs increased +2.8% to CNY3.1 billion.
(CQH) credited lower fuel prices and “robust growth in market demand” as the main reasons for the performance.
Passenger boardings increased +15% to 6.3 million with an average load factor of 94% LF, a +1% point improvement over the year ago period. Passenger revenue grew +23% to 10.64 billion (RPK)s versus a +22% increase in passenger capacity to 11.35 billion (ASK)s. Cargo traffic volume increased +5% to 23,700 tonnes.
Looking ahead, (CQH) noted that it expects to carry 13.6 million passengers this year. It also plans to continue to open more new routes, including Nagoya, Jeju and other neighboring Asian cities.
(CQH) operates from 3 domestic overnight bases at Chinese secondary cities (Shenyang, Shijiazhuang and Shenzhen) as well as from its main operating base of Shanghai.
(CQH) is scheduled to take delivery of 5 Airbus A320s in the 2nd half and will place 3 of those aircraft on international Asian routes.
News Item A-2: Spring Airlines (CQH) became 1 of 3 carriers to launch recent new flights between Shanghai Pudong (PVG) and Tokyo Haneda (HND). On August 5, (CQH) started a 4x-weekly service using its A320s on the 1,735 km sector, competing with Juneyao Airlines (JYA), 3x-weekly and Shanghai Airlines (SHA) 3x-weekly.
(CQH) now serves Jeju (CJU) in South Korea from 5 Chinese airports, the latest being Hangzhou (HGH). On August 26, (CQH) began 4x-weekly flights on the 676 km route using its A320s. Competition comes from Air China (BEJ) (6x-weekly flights) and Beijing Capital Airlines (DER) (2x-). (CQH) already serves Jeju from Harbin, Shanghai Pudong, Shijiazhuang, and Tianjin. This is (CQH)’s 2nd international route from Hangzhou (after Bangkok Suvarnabhumi), complementing (CQH)’s 4 domestic routes from the airport.
September 2015: News Item A-1: Spring Airlines (CQH), with HQ in Shanghai, has opened a direct flight between Guiyang, Guizhou province and Nagoya, Japan, as of September 26, the 1st direct flight between southwest China and Central Japan.
(CQH) is using an A320 for the route, on Mondays, Wednesdays and Saturdays, departing Guiyang at 7:35 pm and arriving in Nagoya just after midnight, then departing Nagoya at 2:50 pm and landing in Guiyang at 6:35 pm.
Airline officials say they are working on 5-day and 6-day tour packages to Japan.
News Item A-2: Spring Airlines (CQC) launched the 1st non-stop service linking Changchun, in Northeast China's Jilin Province with Osaka, Japan on September 27, the Mid-Autumn Festival.
The new service is operated 2x-weekly on Tuesdays and Sundays, using an A320. The 9C8769 flight is scheduled to depart from Changchun Longjia International Airport (CGQ) at 7:40 pm and arrive in Osaka at 11:15 pm; while the return flight 9C8770 will leave from Osaka Kansai International Airport (KIX) at 4:55 pm and land in Changchun at 6:40 pm.
The inaugural flight was full loaded, drawing much attention from outbound travelers. The nonstop route is believed to greatly save time and money for travelers traveling to Osaka and therefore boost economy development in the 2 regions. To celebrate the inaugural flight, (CQH) offers favorable tickets as low as 399 yuan for a single trip.
With the opening of Changchun - Osaka service, (CQH) becomes the 6th airline operating international routes at Changchun airport, following China Eastern Airlines (CEA), Asiana Airlines (AAR), China Southern Airlines (GUN), Juneyao Airlines (JYA) and Mandarian Airlines (MDN).
News Item A-3: China Southern Airlines (GUN) has selected Thales (THL) Dual Head Up Displays (HUD) configuration across 30 of their new Airbus A320s, alongside the company’s Flight Management System (FMS) and Low Range Radio Altimeter (LRRA). The order represents Thales (THL)'s largest contract for (HUD)s and the 1st for a dual configuration system since the Civil Aviation Authority of China (CAAC) made it mandatory for all Chinese registered aircraft to be equipped with (HUD)s.
The dual configuration developed by (THL) was certified by Airbus (EDS) in early 2015. (THL) will equip its (HUD)s across China Eastern (CEA), Sichuan Airlines (SIC), and China Loong Air (CDC), as well as Spring Airways (CQH.
News Item A-4: A brand new A320 (B-8247 - - see photo "CQH-A320 - 2015-09.jpg) aircraft of Spring Airlines (CQC) touched down at Shanghai Pudong International Airport (PVG) on Saturday morning, which is the 1st aircraft painted in a new livery with "Ch.com" on the fuselage and the 1st 186-seat A320 delivered to a Chinese airline.
The arrival of the aircraft increases (CQH)'s A320 fleet to 52.
(CQH) has been flying the A320 aircraft with 180Y seats. However, the aircraft cabin was redesigned by Airbus (EDS) with a maximum load of 186Y passengers to further increase efficiency.
"The introduction of the 186Y-seat A320 will continue to lower the operating cost of the company, allowing (CQH) to provide more competitive airfares," said Zhang Wu'an, spokesman for (CQH).
The 2nd 186-seat A320 will join Spring Airlines (CQH) on September 27.
2 A320-214 (6486, B-8248; 6765, B-5247), ex-(D-AXAP & D-AXAL), deliveries.
October 2015: News Item A-1: On the opening day of the Air Traffic Control (ATC) Global Show in Dubai, Thales (THL) announced its continued growth in China, with the signing of a contract to implement its latest Air Traffic Management (ATM) automation systems for the Shanghai Metroplex air space.
(THL) and Beijing Easy Sky Technology (BEST), a Thales – (TEDC) joint venture (JV), have jointly signed a contract with the Civil Aviation Authority of China (CAAC), East Air Traffic Management Bureau (ATMB), in order to implement a new (ATM) automation system in Shanghai.
Through this contract, (THL) together with (BEST), will upgrade the Shanghai airspace and airport management systems. This will include the Shanghai terminal manoeuvering area and surface operations at Shanghai Pudong and Shanghai Hongqiao airports.
The contract includes implementation of Thales (THL) "TopSky-(ATC)." (THL) will also deploy "TopSky-Tower," its advanced, integrated tower automation suite, at both Shanghai airports. Airport and airspace traffic flows will be sequenced and balanced using (MAESTRO), (THL)'s fully integrated arrival and departure management system.
This is a crucial contract for the region, as collectively, the Shanghai Metroplex (incorporating both Shanghai airports) ranks just behind Beijing in China, and is in the top 10 in the world, in terms of air traffic movements. With air traffic in the region set to grow at a steady +20% over the next 10 years, the modernization program will be instrumental in maintaining the projected growth rate, while supporting excellence in air safety for the Shanghai Metroplex.
November 2015: China’s Spring Airlines (CQH) and Juneyao Airlines (JYA) posted 3rd-quarter net profits due to market demand growth and lower fuel prices.
Spring Airlines (CQH) reported a 3rd-quarter net profit of +CNY582.8 million/+$91.4 million, up +50.7% over a net income of +CNY386.72 million in the year-ago quarter. Operating revenue climbed +10.8% to CNY2.37 billion, while operating expenses rose +2.6% to CNY1.8 billion.
Juneyao Airlines (JYA) posted a 3rd-quarter net income of +CNY454.52 million in the 3rd quarter, up +88.12% over the net profit of +CNY241.6 million. Operating revenue jumped +27.3% to CNY2.42 billion against a +20.3% increase in operating expenses to CNY1.91 billion.
Earnings for the 2 privately run carriers was in sharp contrast with China’s big 3 state-owned carriers (Air China (BEJ), China Eastern (CEA) and China Southern (GUN)) which all reported 3rd-quarter profit declines.
For the 9-month period, Spring Airlines (CQH) reported a net profit of +CNY1.2 billion, up +83% over a net income of +CNY657.5 million in the same period last year. Operating revenue increased +13.4% to CNY6.33 billion, while operating expenses rose +3.9% to CNY5.19 billion.
Juneyao Airlines (JYA) earned a net profit of +CNY972.23 million from January to October, more than doubled the net income of +CNY436.93 million in the same time frame. Operating revenue climbed +23% to CNY6.26 billion against a +10.66% increase in operating expenses to CNY5.117 billion.
December 2015: News Item A-1: "Spring Airlines to Take 60 A320neo Family Aircraft" by (ATW) Victoria Moores, December 3, 2015.
Spring Airlines (CQH) has announced plans to acquire 45 Airbus A320neos and 15 A321neos to the Shanghai Stock Exchange in a deal valued at $6.3 billion at list prices.
Following “tough” negotiations with Airbus (EDS), (CQH), the Chinese budget carrier said it had signed a purchase agreement for the 60-aircraft acquisition on December 3.
(CQH)’s directors “unanimously” agreed the aircraft purchase, which will be used to add capacity and meet growing demand. However, the deal still needs to be ratified by (CQH)’s shareholders. Under the agreement, Airbus (EDS) has committed to deliver the 60 aircraft over the period from 2019 to 2023.
In July, (CQH) detailed plans to raise CNY4.5 billion/$735 million to expand its Airbus A320 fleet.
News Item A-2: Spring Airlines’ low-cost subsidiary (LCC) Spring Japan will receive a capital injection of JPY18 billion/$151 million from Japanese companies, according to Spring Japan (CEO) Wang Wei.
Spring Airlines (CQH) holds a 33% stake in Narita-based Spring Japan (complying with Japanese law limiting foreign investors to one-third ownership) while other Japanese companies hold the rest. The Japanese businesses that will inject capital into the (LCC) include a Japan real estate company and consumer electronics retailer (Bic) Camera.
Wang also said Spring Japan recently received approval from Japan’s aviation regulator to operate international routes. It plans to open new routes from Tokyo, including Chongqing and Wuhan in February 2016.
Spring Airlines (CQH) had expected its passenger boardings would reach 1 million on Sino-Japan routes in 2015. Currently, (CQH) operates some routes from Shanghai to Ibaraki, Takamatsu, New Chitose, Osaka, Nagoya, Asahikawa, and Tokyo (Haneda). Last year, Spring (CQH) revealed it planned to establish an overseas operating base in Osaka and opened +2 more routes, Lanzhou to Osaka and Qingdao to Osaka.
January 2016: 2 A320-214 (6815, B-8370; 6826, B-8371), ex-(B-OOOA & B-OOOV) deliveries.
February 2016: News Item A-1: Spring Airlines Japan ((IATA) Code: IJ, (ICAO) Code: SJO, based at Tokyo Narita) has commenced international operations with the launch of Tokyo Narita to Wuhan, China flights on Saturday, February 13.
The 3x-weekly service was followed by the launch of a 4x-weekly Tokyo Narita - Chongqing service on Sunday, February 14. All operations are on-board 737-800 equipment.
Sister carrier, Spring Airlines (CQH) already is very active in the Japan to China market offering 23 routes from various Chinese cities to Asahikawa, Ibaraki, Nagoya Chubu, Osaka Kansai, Saga, Sapporo Chitose, Takamatsu, and Tokyo Haneda.
Spring Airlines Japan currently operates 3 737-800s to 2 countries, to 5 destinations on 4 routes and 8 daily flights.
News Item A-2: Spring Airlines Japan has launched its 1st international flights from its Tokyo Narita (NRT) base. On February 13, Spring Airlines Japan began 3x-weekly flights on the 2,486 km route to Wuhan (WUH), which is already served 2x-weekly by China Southern Airlines (GUN). The following day, it began 4x-weekly flights on the 3,243 km route to Chongqing (CKG). There is no direct competition on this route. Unlike Spring Airlines (CQH) in China, which operates a fleet of A320s, Spring Airlines Japan uses 737-800s, as apparently it is easier to find qualified pilots (FC) for this type in Japan. At present it operates just 3 of the type.
March 2016: News Item A-1: Chinese budget carrier, Spring Airlines (CQH) has delayed its plan to fly to the North Korean capital of Pyongyang, citing "market conditions," a company official said.
(CQH) had originally planned to begin scheduled flights to Pyongyang from February, but the decision to delay the plan came after North Korea's 4th nuclear test on January 6 and a rocket launch about a month later.
An official of (CQH) in Shanghai said the decision was not related to new (UN) sanctions against North Korea's nuclear test and rocket launch, both of which violated previous (UN) resolutions. "The plan was postponed for the time being because of a market condition and our transportation capacity," the official said.
(CQH) won regulatory approval to launch flights to Pyongyang on January 12, according to China's Civil Aviation (CAAC) authorities.
Asked whether (CQH) could begin flights to Pyongyang in the 2nd-half of this year, the official replied, "No decision has been made."
China, which backed the new (UN) resolution against North Korea, has said it would earnestly implement the new sanctions, but stressed that they should not affect the livelihood of North Korean people.
Still, China is unlikely to put crippling economic sanctions on North Korea because a sudden collapse of the regime could spark a refugee crisis at its border and lead to a pro-USA and democratic Korea on its doorstep, analysts say.
News Item A-2: Spring Airlines (CQH), China's largest budget carrier, launched a "love flight" from Shanghai to Jeju, South Korea on March 11, carrying 22 singles on an in-flight blind date.
The 22 met in person for the 1st time after the plane took off, according to (CQH), which organized the promotional event. An ice-breaking game held at the airport terminal before takeoff, according to (CQH), which organized the promotional event. Upon their arrival in Jeju, the Chinese couples embarked on a 4-day and 3-night tour, further getting to know each other, (CQH) said.
Since the end of 2013, when Spring Airlines (CQH) launched the 1st ever blind date up in the air from Shanghai to Kunming, (CQH) has operated 6 "love flights" totally and transported >400 single persons. 3 couples have successfully got married afterwards in 2015.
May 2016: Spring Airlines (CQH) earned a 1st-quarter net profit of +CNY366.68 million/+$56.7 million, up +44% over a net income of +CNY254.32 million in the year-ago quarter.
1st-quarter operating revenue grew +3.5% to CNY2.09 billion, while operating expenses increased +2% to CNY1.74 billion. (CQH) didn’t reveal traffic figures.
Looking forward, Spring Airlines (CQH) plans to expand its fleet to 66 aircraft and transport 14.4 million passengers in 2016. But it also warns the slowdown of China’s economic growth and fluctuations in fuel prices and exchange rates still remain challenges.
August 2016: News Item A-1: Spring Airlines (CQH) plans to circulate up to 91.5122 million shares of its stock at 43.71 yuan/$6.55 per share, to specified investors. The share issue is to raise 4 billion yuan towards the purchase of 10 Airbus A320s and 1 A320 simulator. According to (CQH), the overall deal is worth 6.488 billion yuan.
(CQH) estimates the new A320s will boost (CQH)’s operating revenue by about 1.5 billion yuan per year, and the simulator will save (CQH) about 8 million yuan in annual operating costs. (CQH) plans to expand its fleet to 100 aircraft by 2018 to meet growing market demand. (CQH) operates 61 A320-family aircraft, and is scheduled to take delivery of >10 aircraft in 2017 to 2018.
2 A320-214 (7122, B-8646; 7159, B-8647), ex-(B-OOOM & B-000U) deliveries.
November 2016: Spring Airlines (CQH) has filed an application to the Civil Aviation Administration of China, seeking rights to further expand its network to Japan.
Pending government approval, starting this December, (CQH) the low cost carrier (LCC) will launch a 2x-weekly service linking Luoyang and Osaka, with a stopover in Yangzhou.
The Luoyang to Yangzhou to Osaka service will be operated by using Airbus A320s.
The Air Transportation Department of the (CAAC) is soliciting public comments on the application until December 1, 2016.
December 2016: The Spring Group, parent of Spring Airlines (CQH), has signed a strategic cooperation agreement with China's largest e-commence giant, the Alibaba Group. Under the agreement, the 2 sides will cooperate in developing air tickets, destination marketability, loyalty programs, Information Technology (IT) and data storage, and payment/transactions facilities among others.
"Through our partnership with the Alibaba Group, the 2 sides will develop in-depth cooperation in their respective areas of expertise and play to their strengths to the advantage of online consumers as well as the aviation and hospitality industries at large," Spring Airlines (CQH) Chairman Wang Zhenghua said during the signing ceremony on December 28.
January 2017: 737-8Q3 (61776, JA04GR), delivered to Spring Airlines Japan. A320-214 (7385, B-8817), ex-(B-000l) delivery.
February 2017: News Item A-1: Chinese airlines are rapidly increasing flights to the Philippines following the relaxing of visa requirements between the 2 countries in October 2016. Since then, 675,700 Chinese tourists visited the Philippines in 2016, up +37.1% over 2015. Local industry analysts predicted this figure will continue to grow quickly this year. Over the past 3 months, >10 Chinese carriers (including China Eastern (CEA), Sichuan Airlines (SIC), Juneyao Airlines (JYA), Spring Airlines (CQH), Xiamen Airlines (XIA) and Capital Airlines (DER)) have applied to open nearly 40 international routes to Kalibo and Cebu in the Philippines. Tianjin Airlines (GCR) has applied to open 5 international routes to the Philippines from Tianjin, Ningbo, Xi’an, Wuhan, Nanjing and Chongqing.
7 Chinese carriers currently operate routes to the Philippines with 24,000 weekly flights. Local analysts point out many domestic airlines need to find new SE Asian markets (such as the Philippines) to make up for decreased demand in the Thailand market after the government tightened tourism restrictions following the death of Thailand’s king last year. However, analysts also expressed concern about the Philippine’s infrastructure and aviation safety that may impact the fast-growing Sino-Philippine market.
A320-214 (7408, B-8963), ex-(B-OOOW), and E190-200LR (0725, B-3236), ex-(PR-EYD) deliveries.
April 2017: Spring Airlines (CQH) reported a net profit of +CNY950.5 million/+$138 million for 2016, down -28.4% compared with the 2015 net income of +CNY1.3 billion. Operating revenue rose +4.2% to CNY8.4 billion, but costs increased +13.7% to CNY7.4 billion. Industry analysts cited “rising fuel expenses and the exchange losses” and “the decrease in yields on international routes” as main reasons for the low cost carrier’s (LCC) performance.
May 2017: A320-214 (7556, B-8571), ex-(B-000E) and (7670, B-8592), ex-(F-WWBF), China Aircraft Leasing Group leased, deliveries.
August 2017: News Item A-1: Shanghai-based low cost carrier (LCC) Spring Airlines reported a net profit of +CNY554 million/+$81.7 million in the 2017 1st half, down -25.2% over net profit of +CNY740.1 million in the year-ago half because of a sharp increase of operating costs.
Operating expenses jumped +41% to CNY5 billion, while operating revenue was up +28.1% to CNY5.1 billion. Ancillary revenue grew 23.6% to CNY409 million.
Passenger boardings increased +26.8% to 8.32 million with an average load factor of 91.8% LF, down -1.15 points over year-ago period. Passenger capacity rose +30.7% to 16.1 billion (ASK)s against a +29.1% increase in passenger revenue to 14.8 billion (RPK)s. Cargo traffic volume was up +20.1% to 23,372 tonnes.
In the 1st half, Spring (CQH) increased domestic capacity but cut international capacity, especially on routes to Japan, Korea and Thailand because of increasingly fierce competition. The ratio of international routes decreased to 30.7% from 34.6% in terms of (ASK)s while domestic routes were up +65.9% from 61.9%; the number of regional routes (Hong Kong, Macau and Thailand) decreased -3.4% from 3.5%.
As of June 30, (CQH) expanded its fleet to 73 aircraft by introducing 7 Airbus A320s on 162 routes, which included 108 domestic and 54 international routes. Spring (CQH) noted the company will continue to expand international operations, but plans to focus more on the more profitable domestic market.
“In 2016, domestic (LCC)s account for a 10% share of Chinese market, which is still comparably low. With the implementation of relevant favorable policies formulated by the Civil Aviation Administration of China [CAAC] for domestic (LCC)s (and continuous robust growth of domestic market demand) the Chinese market has a broad prospect and big potential,” Spring (CQH) noted.
(CQH) is scheduled to take delivery of 4 A320s in the 2nd half of this year.
News Item A-2: Spring Airlines (CQH) plans to collect CNY4 billion/$600 million by circulating non-public A shares to purchase 10 A320 aircraft and 1 A320 simulator.
(CQH) revealed in an August 24 Shanghai Stock Exchange filing it would spend CNY3.95 billion on the 10 A320s and CNY50 million on the simulator. “If the CNY4 billion we plan to collect is not enough, we will make up for the shortfall by ourselves,” (CQH) said.
January 2018: (CFM) International has finalized an agreement with Spring Airlines (CQH) for the purchase of 120 (LEAP-1A) engines to power its 60 Airbus A320neo family aircraft. The deal was signed in conjunction with French President Emmanuel Macron’s visit to China.
The aircraft order was announced in December 2015 and the engine order was previously announced at the 2017 Paris Air Show. The total value of the transaction is $2.9 billion and the aircraft are scheduled for delivery from 2019 to 2023.
In addition, (CQH) and (CFM) signed a 10-year rate-for-flight-hour agreement, under the terms of which (CFM) will support the entire fleet on a dollar-per-flight-hour basis.
February 2018: A320-214 (8060, B-1023), ex-(D-AXAK), (DAE) Capital leased.
Click below for photos:
CQH-737-800 - SPRING AIRLINES JAPAN - 2013-12
CQH-A320 - 2015-09.jpg
CQH-A320 - 2016-12.jpg
CQH-A320 - 50TH 2015-02.jpg
6 737-8A3 (CFM56-7B) (JA01GR; JA02GR; JA03GR; 61776, JA04GR, 2017-01), FOR SPRING AIRLINES JAPAN OPERATIONS.
0 A319-112 (1263), (GEF) LEASED 2005-11.
15 A320-200 (CFM56-5B), LEASED (2013-09) 1 WITH SHARKLETS. 180Y.
1 A320-200, (ICBC) LEASING LEASED 2015-02. 180Y.
7 A320-200 (CFM56-5B4/P) (B-8247, 2015-09), 2015-09. 186Y.
1 A320-214 (CFM56-5B4/P) (879, /98 B-6258), EX-(IBW), (GEF) LEASED 2005-10. 180Y.
2 A320-214 (CFM56-5B4/P) (978, /99 B-6328, 2007-07; 5446, B-9928, 2013-01), EX-(ABE), AVIATION CAPITAL (CGP) LEASED. 180Y.
6 A320-214 (CFM56-5B4/P) (1286, /00 B-6280, 2006-01; 1372, /00 B-6250; 2939, /06 B-6301, NEW LIVERY - SEE PHOTO; 3014, /07 B-6309; 3023, /07 B-6310; 4909, B-6851, 2011-11; 5434, B-6971, 2013-01), EX-(LOU), (GEF) LEASED 2005-06. 180Y.
1 A320-214 (CFM56-5B4/P) (1686, /01 B-6320), EX-(SKB), (BOU) LEASED 2007-05. (ALE) LEASED 2011-06. 180Y.
1 A320-214 (CFM56-5B4/P) (3591, B-6388), MACQUARIE AIRFINANCE LEASED 2009-04, EX-(I-EEZD). 180Y.
2 A320-214 (CFM56-5B4/P) (3747, B-6562, 2009-01; 4168, B-6645, 2010-01), AERVENTURE LEASED 2009-01. 180Y.
16 A320-214 (CFM56-5B4/P) (3819, B-6561, 2009-03; 4072, B-6612, 2009-10). 180Y.
1 A320-214 (CFM56-5B) (4331, B-6705), (SIL) LEASED 2010-06.
1 A320-214 (CFM56-5B) (5366, B-6972), (AWA) LEASED 2013-01.
3 A320-214 (CFM56-5B) (4760, B-6840, 2011-10; 4978, B-6863, 2012-01; 4983, B-6862, 2012-01), 174Y.
14 A320-214 (CFM56-5B) (5022, B-6931 2012-07, 5562, B-9940, 2013-06; 6073, B-1839, 2014-08; 6486, B-8248, 2015-09; 6524, B-1657, 2015-03; 6765, B-5247, 2015-09; 6815, B-8370, 2016-01; 6826, B-8371, 2016-01; 7122, B-8646, 2016-08; 7159, B-8647, 2016-08; 7381, B-8581, 2017-01; 7408, B-8963, 2017-02; 7556, B-8571), EX-(B-513L & B-517L), EX-(B-OOOA, B-OOOE, B-OOOL, B-OOOM, B-OOOU, B-OOOV, & B-000W). 174Y.
1 A320-214 (CFM56-5B) (5911, B-9986), EX-(F-WWBQ), (GEF) LEASED 2012-12. 174Y.
1 A320-214 (CFM56-5B) (6216, B-1892), (SMBC) AVIATION CAPITAL LEASED 2014-08. 174Y.
2 A320-214 (CFM56-5B) (6318, B-1671; 6329, B-1670), EX-(B-502L & B503L), (ICBC) LEASING LEASED 2015-01. 174Y.
1 A320-214 (CFM56-5B) (7670, B-8592), EX-(F-WWBF) CHINA AIRCRAFT LEASING GROUP (CALG) LEASED 2017-05. 174Y.
1 A320-214 (CFM56-5B) (8060, B-1023), (DAE) CAPITAL LEASED 2018-02. 174Y.
1 A320-232 (4093, B-6646, 2010-03). 174Y.
1 A320-232 (4244, B-6667), (GEF) LEASED 2010-03. 174Y.
45 ORDERS (2019-02) A320neo (LEAP-1A):
15 ORDERS A321neo (LEAP-1A).
1 EMBRAER E190-200LR (0725, B-3236), EX-(PR-EYD) 2017-02.
Click below for photos:
CQH-1-WANG ZHENGHUA - CHMN - 2008-08
CQH-1-WANG ZHENHUA - 2013-05
CQH-2-XIUZHI ZHANG - 2013-08
CQH-2-XIUZHI ZHANG - CEO - 2012-03
CQH-2-ZHANG XIUZHI - 2015-03.jpg
WANG ZHENGHUA, FOUNDER & CHAIRMAN.
"Airline Business" magazine interview of Wang Zhenghua, dated 2013-05:
In adapting the low-cost model to China, Spring Airlines (CQH) successfully managed to infiltrate a market dominated by 3 state-owned giants. Chairman Wang Zhenghua looked to capitalize on the country’s pent-up demand for cheap travel. Meeting a senior executive from 1 of China’s state-owned airlines? You will probably make your way to a gleaming new office tower in downtown Beijing, Shanghai or Guangzhou, where immaculately coiffured receptionists escort you to a swank room with modern European furniture.
Compared with them, the Spring Airlines (CQH) offices next to Shanghai’s Hongqiao airport are spartan. You walk into a set of nondescript buildings built at least 20 years ago, distinguished by a large neon sign on the roof that would not have looked out of place in the early 1990s.
Slow-moving lifts take you to a modest 2nd story conference room with a wooden table and simple but comfortable chairs, and the cacophony of car horns from the nearby busy road drifts into the room via a window that is opened for ventilation.
Substance, more than style, defines the low-cost carrier (LCC) and this largely stems from Founder and Chairman, Wang Zhenghua’s personality.
When 1 Chinese state-owned carrier’s Chairman went to Singapore in 2010, a year after getting a $1 billion government bailout, his suite in a 5-star hotel had a billiards table and personal butler. The self-made Wang went to London for a conference in 2012 and stayed in the £40 a night Heathrow Lodge where his room had a shared bathroom – and he had to be convinced that it was a fair deal. “We don’t need to gloss things up and make them unnecessarily expensive,” says Wang through a translator. “My counterparts in other companies have offices that are 7x-, 8x- or 10x- larger and more attractive than mine. But that is for show and it is not important to what I am doing, or to doing my business effectively. This philosophy is part of the Spring Airlines (CQH) (DNA),” he said.
Waking up at 6 am every morning for the last 38 years to practice tai chi has helped this 69-year-old look far younger than his age, and provided him with a discipline and focus that has made him one of China’s most successful businessmen. His flagship Spring Travel had humble beginnings in 1981, but it overtook the larger lumbering state-owned competitors within 16 years. And he has similar plans in store for the Chinese airline industry.
Aviation was barely “an interest” for Wang when he spent 3 years in the mid-1990s studying the next step for the Spring Group. He got into the business only after researching the viability of the charter and full-service markets, before becoming intrigued by Southwest (SWA)’s low-cost revolution in the USA. “I saw an opportunity in an industry where the dominant global players are smart, privately-owned companies. (SWA) opened the market up to a whole new class of traveler, leveling the playing field on who might fly, and we thought that we could adapt this model to China,” said Wang.
Despite the success with the travel business, it took guts to enter an industry where, even today, the regulator owns all of the dominant players. The big 3: – Air China (BEJ), China Eastern Airlines (CEA), and China Southern Airlines (GUN) are also closely connected to the political elites in their home bases, and therefore to the different factions within the Communist Party of China.
The government’s “dilemma”, said Wang, was that it needed to allow “a corridor” for the likes of Spring to start up and achieve a “larger macro-economic goal” of increasing air connectivity within the country. At the same time, it needed to protect the state-owned carriers.
So when Spring (CQH) began operations in July 2005 with one A320, it was given only the early morning or late night slots that nobody else wanted. But Wang and his team took them, knowing that even a toehold would give (CQH) a base from which it could build itself up.
Early attempts at promotional CNY1 fares led to complaints from the competition, which the regulators upheld, and the airline had to find different ways of marketing itself. It also took time to educate the Chinese traveler about the concept of flying without frills. Instead of moaning, the airline’s management knuckled down and challenged itself to overcome the problems.
“Regardless of who you are, the challenges that you predominantly face are internal. You have to understand your market, your consumer and their changing habits. Only you can control your destiny, and you are responsible for your own success,” said Wang.
* NATURAL SURVIVOR
That was tested during the 2008 global financial crisis, when the big 3 state-owned carriers collectively chalked up losses of >CNY13 billion and remained in the red over the next few years. Beijing then bailed them out with billions of yuan. Other privately-owned carriers went bust, but Spring (CQH) survived without any help by digging in, cutting costs and attracting passengers who started to pay attention to its cheap fares as they tightened belts.
“When you look at what happened to the other privately-owned airlines, you can see that there is a great inequity in the way the market operates,” Wang conceded. “Obviously, this is out of my control. I prefer to focus on what we can control.”
Slowly, the regulators gave (CQH) more slots as the airline proved that its presence brought benefits to the airports and the country. Its network now covers most of the lucrative domestic city pairings, it has opened up services to secondary cities and began international services in 2009.
There have been hiccups. In 2012, (CQH) made headlines by blacklisting some passengers who took it to a consumer court (and won compensation) after their flight was delayed by >8 hours.
Wang blames these “unrealistic expectations”, ironically, on travel agents who fail to properly explain the airline’s business model to their customers. “Around 80% of our passengers buy our tickets online, and they understand the product. The problem exists with those who go through agents. If we reduce the percentage of tickets sold by agents, there won’t be these problems,” said Wang.
* INTERNET GENERATION
Spring (CQH)’s success is largely due to the internet. China may be more famous for the government’s restrictions on online political content and discussion, but it is also home to the world’s fastest growing e-commerce market. Last year, 220 million people made on line purchases in China, a figure that is expected to reach 432 million by 2016. Many young Chinese are also addicted to on line games in which they have to pay more to access additional benefits (similar to how airlines earn ancillary revenues).
“The average passenger spends CNY20/$3.3 on ancillary products in China, but it is around 10 times more in the mature markets. We have a lot of room for growth,” he added. “Our on line presence gives us a clear advantage as our sales costs are up to -70% lower than our competition, who must spend a lot more to get the same number of passengers.”
Keeping operational costs down is also key to success in China’s low-fare environment. (CQH) breaks it down on a daily basis for each of the 43 airplanes in its fleet, and this is compiled into a monthly report that allows the management to be more knowledgeable and nimble.
“If we open a new route, we have to give it breathing space to stimulate demand. But in a mature market, we can respond very fast to anything that could be loss making. Of course, we also look at the market conditions and the potential for future growth. But we are very flexible,” said Wang.
That is crucial amid growing competition in the budget segment. SE Asia’s (LCC)s fly to many points in China. 3 started operations in Japan in the last year, and China Eastern (CEA) and Qantas (QAN) subsidiary, Jetstar (IMU) plans to start up a Hong Kong-based subsidiary by the end of the year.
The China Eastern (CEA) - Jetstar (IMU) venture is the most intriguing, given that it is the 1st step by one of China’s majors into the low-cost segment. Wang believed that (CEA) would “inevitably” set up a (LCC) in the mainland, and that the country would eventually have 4 or 5 budget airlines.
“This will happen. We can’t be worried or afraid of the competition. We just have to be aware of the potential changes in the market and be ready for them when they happen. It is up to us to be better and smarter than the competition,” he said.
* ON THE OFFENSIVE
Taking the fight to the competition is an option, with Wang revealing that Spring (CQH) could apply to set up a joint venture (JV) in Hong Kong too if it “finds the right partner”. Doing that in Japan, however, has been a “struggle”, with (CQH)’s attempts to set up a joint venture stalled for the last 2 years. Tokyo has dithered on (CQH)’s application, which some say is partly due to the souring of bilateral relations between China and Japan because of a diplomatic row over disputed islands.
“One of the fundamental issues was the differences in cultural attitudes, and the ability to communicate what we wanted clearly. It was clearly a struggle. But we are in the final stages and we could get the approval by October,” said Wang, who then added with a laugh and a shrug of his shoulders: “Hopefully.”
Spring (CQH) faced another setback earlier this year when the Chinese government put the brakes on its fleet plans. Chinese airlines must get state approval to import airplanes, and Beijing has asked (CQH) to slow down. That means (CQH) will have only 70 airplanes by 2015, down from its earlier plans for 100 A320s. Wang, though, takes this in his stride. “Yes, it slows down our growth plans. But stable growth is at the core of any airline operation. This forces us to grow sustainably and safely, and that is not a bad idea,” he said.
Referring to the Lion Air (MLI) 737-800 that came down in the sea short of the runway at Bali in April, he added that there are “risks” to rapid expansion.
“Look at the (LCC) market in SE Asia. Jetstar (IMU), AirAsia (ASW) and Lion Air (MLI) have a growth trajectory that is double ours. Of course Spring (CQH) will also like to grow fast, gain scale and become a larger operation. But that brings risks too. We still have a lot of control over our growth and can become more efficient as a result of this. Taking the larger picture into consideration, the government wants to ensure that the industry can be sustainable and grow safely. We are not opposed to that premise.”
By steadily chugging along, (CQH) has remained profitable despite a tough 2012. Wang declined to give the exact figures, citing regulatory restrictions as a result of its pending application for a listing on the Shanghai Stock Exchange. But he said that (CQH) improved on its 2011 revenue, operating profit and net profit numbers.
Since 2005, many other privately-owned airlines have gone bust in China. Wang, revealed his faith in the strength of a capitalist system in a politically communist country, and said that Spring (CQH) has been resilient because the market “decides everything”.
“The airline market is liberalized. There is room for us and the future looks really good for a company like (CQH). The most important thing is to continuously differentiate ourselves and not replicate what is already there. We have to be creative and find a product that the market wants,” said Wang.
“The nature of the industry is such that there are always niches and there is room for each and every player. It is about getting your space and maximizing your space to become the dominant player. We want to be 1 of the big boys in this market.”
* MAKING NUMBER ONE
By applying lessons learned from Spring Travel, started in a two-square-meter office in Shanghai in 1981, Wang Zhenghua hoped to bring the same level of success to Spring Airlines (CQH).
By keeping costs low and constantly finding ways to attract more customers, (CQH) became China’s largest travel agency for the domestic market within 13 years and the number 1 on all measures 3 years later.
“We all started from a tiny base and by constantly pushing ourselves, we were able to establish ourselves as number one. If we work hard and bring that same ethos to aviation, we can have the same level of success,” said Wang.
“But the most important lesson that I have learned and we must always keep in mind, is that whoever was number 1 yesterday, is not necessarily number 1 today, and whoever is number 1 today is not necessarily the number 1 tomorrow.”
* PURE AND SIMPLE
Unlike many other budget carriers in Asia, Wang Zhenghua believes in maintaining purity of (CQH)’s model by closely adhering to the low-cost rule book.
As such, he doesn’t feel there’s any reason to begin long-haul low-cost operations.
Malaysia’s AirAsia X (ASX) and Singapore’s Scoot (SCT) and Jetstar Asia (JSA), as well as Australia’s Jetstar (IMU), have all made forays into that market segment and will be joined by Cebu Pacific (CEB) in the Philippines later this year. But Wang is “not keen” to follow suit. “I am quite comfortable working within the 4,000 km/2,160 nm range that the A320 range can provide and serving that market,” he said. “You add operational complexity if you move away from a single airplane type and the whole nature of the operations. There is no fundamental reason to leave something so effective in its own right.”
One aspect of (CQH)’s strategy that he plays straight by the low-cost rule book, is attention grabbing, and most importantly low-cost, marketing campaigns.
Themed flights on which its cabin staff dress as French maids and butlers are said by the airline to cater to the tastes of its young white-collar passengers. Free guerrilla marketing is a tool frequently used by Western low-cost carriers (LCC)s and (CQH) follows in the footsteps of airlines such as Ryanair (RYR) with its flight attendant calendar and Southwest Airlines (SWA) with its bikini girl livery. The uniforms worn by cabin crew on random flights, have been creating the desired effect in (CQH)’s home market, with the ensuing controversy generating plenty of free publicity.
MS ZHANG XIUZHI, CHIEF EXECUTIVE OFFICER (CEO).
WANG WEI, (CEO) SPRING JAPAN.
NORMAN LIU, EXECUTIVE VP COMMERCIAL OPERATIONS.
ZHANG WUEN, DIRECTOR OF EXECUTIVE OFFICE.
ZHANG WU'AN, MARKETING DIRECTOR.