LEAP OF FAITH

Zhang Xiuzhi, CEO of Chinese low-cost carrier, Spring Airlines, tells Graham Newton that thinking big comes easily.

Spring Airlines was founded in 2004 as part of a partial liberalisation of the civil aviation sector in China and commenced flights in July 2005. 

By 2008, many of the new airlines that emerged during this time had either gone bankrupt or were taken over by the larger state-owned airlines.

Spring’s ability to survive was in part due to its low-cost carrier (LCC) business model and the fact that its major bases are at Shanghai’s Pudong and Hongqaio airports. 

As China’s financial capital and home to a large population with the highest disposable income in China, there is a consistent volume of both inbound and outbound business and leisure traffic at Shanghai.

The management ability of its co-founder, Zhang Xiuzhi, was also crucial. Zhang is a firm believer that the LCC model can thrive in China despite it being a highly regulated market. 

When Spring entered the market, over 80% of the Chinese population had never flown, meaning that the LCC business model made good sense for a market flooded with price-sensitive, first-time flyers.

And as Spring developed, so too did its range of travel products, enabling the airline to cater to an increasingly sophisticated and price-conscious business segment. 

Indeed, the strategy has been so successful that in 2013, China’s aviation administrators acknowledged the role that LCCs play in a sustaining a healthy aviation sector and have now given approval to a number of new LCCs – many of which are full service carriers’ regional subsidiaries that are transitioning to LCCs.

Hainan Group’s West Air and HK Express have already transitioned to LCCs, while a number of other airlines are in the process or contemplating such a move, including Capital, Chengdu and Chongqing airlines.

Zhou Laizhen, CAAC’s deputy director, spoke about the growing importance of the LCC sector at the 2nd ICAO-CAAC LCC summit, saying that they play an important part in the strategic plan for the industry’s growth and are critical to creating a more balanced and fiscally-sound aviation sector. 

He also noted that the business models of both LCCs and full service carriers will continue to evolve and borrow from each other.

Performance by numbers

Since its first flight in July 2005, Spring has grown steadily, assembling a fleet of 46 A320 aircraft and carrying some 13 million passengers in 2014. 

“Significantly, over the last nine years we have maintained an average load factor of 95% and aircraft utilisation of over 11 hours,” says Zhang. 

“This translates into 45 more passengers per flight than the Chinese industry average and 20% lower ton-kilometre fuel consumption. Our goal is straightforward; remain profitable and ensure that our profit per aircraft remains among the industry’s highest.”

Certainly, there’s plenty of room to grow. The LCC market has captured around a third of traffic on average worldwide. In some South East Asian nations that figure is well in excess of 50%. But in China, the world’s second largest aviation market, LCC market share barely scrapes 5%. 

“It is fair to say that a LCC revolution is underway and its impact will be profound,” says Zhang. “This revolution will mean greater operational and management efficiencies and improved competitiveness. It is an exciting time to be in the industry.”

Lessons learned

While the Chinese market may seem unique to many, Zhang informs that there is plenty of lessons to be learned from around the world. 

“When you look back to the classic LCC model that emerged in the 1970s with its focus on a point-to-point, single aircraft type, high load factors and strict cost control, it is now considered LCC 1.0,” Zhang suggests. 

“What Ryanair did in Europe – and the advent of online direct sales, the focus on ancillary revenue – was definitely 2.0. There have been many new versions since then, and we have taken lessons from them all. 

“Operationally, we have stayed with the traditional LCC model of simple, safe and cost effective management. However, we are also focused on leveraging new technologies to improve our online sales channels and increasing ancillary revenues.  

“Regardless of the business model you employ, you need to adapt to changing market expectations,” she continues. “We are always prepared to learn from the industry leaders and pioneers but have  to be flexible in the way we adapt to our unique market conditions and play to our strengths to ensure we, too, remain an industry leader.”

Network

One of those strengths is the point-to-point network and Zhang confirms that remains a priority. Even within the flying range of the A320s, there are rich pickings. Spring operates over 80 domestic, regional and international routes covering the Greater China, North Asia and South East Asian regions. 

From its bases in Shanghai, the airline can operate the A320 to over 266 cities in more than 26 countries, a network serving 3.7 billion people. 

“North Asia is an important market for us,” says Zhang. “Our recent expansion in Japan and Korea means we already have aircraft overnighting in Osaka and Jeju Island. 

“Stable Sino-Japanese relations and a Sino-Korean Free Trade Zone will mean that we will seek to open new routes and add density on existing routes in the region. At the same time we will look at more tourist routes in South East Asia.”

Watch this space for further developments.