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Yangtze Business Daily News● Yangtze Business Daily reporter Shen Yourong

Spring Airlines (601021.SH), the "Pinduoduo of the civil aviation industry", has forecast positive performance.

In the first half of this year, Spring Airlines expects to make at least 1.29 billion yuan in profit. In 2023, when many airlines were losing money, Spring Airlines made 2.257 billion yuan.

How did Spring Airlines become the most profitable airline in China's civil aviation industry?

He resigned from his public office and started his own business, expanding from the tourism industry to the civil aviation industry. After 20 years, Wang Zhenghua built a unique aviation empire worth 50 billion yuan.

Wang Zhenghua's secret is to reduce costs to the extreme. His peers describe him as the most "thrifty" entrepreneur. Spring Airlines does not provide free meals or free checked baggage. The cabin settings and services are extremely simple. Some people commented that Wang Zhenghua has "moved the green train to the sky."

Wang Zhenghua once said that he hoped that all Chinese people could afford to fly, and that migrant workers could also fly home for the Spring Festival. The affordable prices of 299 yuan, 199 yuan, and 99 yuan that appeared from time to time helped Spring Airlines achieve a passenger load factor of 91.7% in the first half of this year.

Seven years after handing over the position of chairman, this year, 80-year-old Wang Zhenghua donated most of his shares to his eldest son Wang Yu, completing the family wealth inheritance.

54-year-old Wang Yu is happy but also worried. Spring Airlines has received many complaints about high refund fees and poor air travel experience, and the second-generation Wang Yu faces considerable challenges.

From tourism to aviation

For Wang Zhenghua, starting his own business at the age of 38 was a sign of both vision and courage.

Wang Zhenghua was born in an ordinary alley in Shanghai in 1944. He was the eldest of seven siblings. After graduating from high school, Wang Zhenghua worked as a civil servant in Changning District, Shanghai. During this period, in order to find employment for a large number of educated youth who returned to their hometowns, Wang Zhenghua set up five companies at once, including an auto repair shop, an intercity passenger transport company, and Spring and Autumn Cultural Tourism.

Public information shows that Wang Zhenghua decided to go into business because he "didn't want to be controlled by many people." In 1982, the 38-year-old Wang Zhenghua officially became a businessman, and the only thing he "took away" from the system was Spring and Autumn Culture and Tourism.

At that time, Wang Zhenghua's approach was not understood. But Wang Zhenghua was good at accepting new things. After going through many difficulties, he hired IT experts who returned from the UK to build an internal network and independently developed the "Novi Network Platform", which achieved unified ticketing, unified financial settlement, and passenger flow sharing across the country.

By 1987, with the improvement of the ticket purchasing network and the recognition of the "European and American" tourism model promoted by Wang Zhenghua, Chunqiu Culture and Tourism's turnover reached 1 million yuan. In 1994, it won the first place in the domestic tourism industry.

Wang Zhenghua discovered a new problem: the travel business was almost entirely centered around surrounding cities, and it was difficult to expand into more distant cities because air tickets were too expensive.

Is it possible to reduce the price of air tickets? If there are empty seats on the plane, why not sell them at a discount? He contacted the Shanghai branch of Air China, hoping to contract the empty seats after the international flight transfer at a price of 30% to 50% off. Air China's price was: it can be sold, but the monthly contract must be 5,000. If this number is not reached, it will be settled at full price.

Wang Zhenghua weighed the options and thought it was a good idea. As a result, he sold 20,000 discounted tickets every month.

The booming market for low-priced air tickets gave Wang Zhenghua a new idea: could he start his own business in the aviation industry?

The opportunity soon came. In 2004, the Civil Aviation Administration of China opened the door to private capital to enter the civil aviation industry. This year was called the first year of China's private aviation. That year, three private airlines were approved, and Spring Airlines was one of them.

In 2005, 61-year-old Wang Zhenghua bought his first plane. He was full of hope: Spring Airlines wanted to be a company where every Chinese could afford to fly.

Spring Airlines' first flight from Shanghai to Yantai was officially launched, with special tickets as low as 199 yuan, breaking the record for the lowest ticket price that year. All 180 tickets were sold out as soon as they were put on the shelves.

Spring Airlines has grown rapidly. In 2012, the company was listed on the A-share market. In that year, the company's operating income was 5.632 billion yuan and the net profit attributable to the parent company's shareholders (hereinafter referred to as "net profit") was 625 million yuan. By 2019, the company's operating income and net profit were 14.804 billion yuan and 1.841 billion yuan, respectively, both nearly three times that of 2012.

As of July 12 this year, Spring Airlines' market value was approximately 52.7 billion yuan.

Since 2019, Wang Zhenghua has become a frequent visitor on the rich list. On March 25 this year, he ranked 1274th on the "2024 Hurun Global Rich List" with a wealth of 20 billion yuan.

An empire built by earning money and saving money

How did Wang Zhenghua build an aviation empire with a market value of over 50 billion yuan? What secret did he master?

In the eyes of the outside world, Spring Airlines is the "Pinduoduo of the civil aviation industry", and in the eyes of his peers, Wang Zhenghua is "stingy". Wang Zhenghua himself defines it as low-price misaligned competition.

How stingy is Wang Zhenghua? By April this year, Spring Airlines had 125 aircraft, all of which were Airbus A320 series.

Why are all the planes Airbus A320? This is a reflection of Wang Zhenghua's cost reduction. In this way, there are cost advantages in terms of purchase price, repair and maintenance. In addition, it is more efficient in pilot training and scheduling. There is no need to schedule specific airports, specific routes, or specific aircraft models. As long as there are pilots, they can fly, which can effectively reduce communication costs.

Wang Zhenghua is stingy in every aspect. In terms of the aircraft cabin, Wang Zhenghua chose a single model Airbus A320 narrow-body aircraft, which only has economy class, no first class and business class, and a total of 180 seats. No free meals or drinks are provided on the plane, and Wang Zhenghua dismantled the flight kitchen to add 6 seats.

It is reported that Wang Zhenghua also wanted to imitate the train and launch "air station tickets". Through modification, the distance between seats would be shortened and the passenger capacity would be increased by about 40%.

In order to save fuel costs, Wang Zhenghua required that the aircraft fly as high as possible while ensuring safety, so that there would be less resistance at high altitudes and fuel consumption would be reduced accordingly. It is estimated that this measure alone saves Spring Airlines 30 million yuan in costs each year.

In order to reduce costs, Spring Airlines often lands at Category II airports, or chooses to park at remote parking positions, or only parks for half an hour each time. This method can reduce parking fees by about 5,000 yuan each time.

Spring Airlines does not have a dedicated cleaning team on board, so the flight attendants have to take on the work of waiters and cleaners. It is said that someone saw Wang Zhenghua taking tools to clean the cabin after the flight landed.

Due to its obsession with low prices and overly simplified cabin services, Spring Airlines is jokingly called the "green train in the sky."

Wang Zhenghua also saves money for himself. He only flies with his own company or economy class, and he only stays in three-star hotels or below.

While "squeezing and shaving" costs, Wang Zhenghua implemented a low-price positioning. Spring Airlines launched special air tickets of 299 yuan, 199 yuan, 99 yuan, and even 9 yuan and 1 yuan. In the consumption consciousness of ordinary citizens, flying is a high-end consumption. Spring Airlines' extremely low-priced air tickets attracted a large number of passengers.

In 2023, Spring Airlines' overall passenger load factor was 89.4%, up 14.7 percentage points year-on-year, of which the average passenger load factor on domestic routes reached 90.3%. In 2023, among the three major airlines, China Southern Airlines had the highest passenger load factor of 78.1%.

In addition to low prices, Wang Zhenghua chose to open routes to second- and third-tier cities, and even third- and fourth-tier cities, to compete with the three major airlines including Air China.

Half of it is earned, and the other half is earned through "squeezing". It is precisely by "earning + squeezing" that Spring Airlines has gradually grown under the pressure of the three major airlines. By the end of 2023, the company's total assets reached 44.238 billion yuan.

Second-generation challenges under the new situation

By achieving extreme cost savings and simplified services, Wang Zhenghua has enabled Spring Airlines to have a strong ability to resist risks.

From 2020 to 2023, global air travel suffered a heavy blow, and major airlines suffered huge losses. In 2020, Boeing lost about 77.5 billion yuan, and Delta Airlines lost more than 80 billion yuan. This year, Spring Airlines also suffered a loss of 588 million yuan.

In 2023, most airlines in the domestic aviation market were still losing money, but Spring Airlines was the first to turn losses into profits. That year, its operating income was 17.938 billion yuan, a record high; its net profit attributable to its parent company was 2.257 billion yuan, also a record high, an increase of 174.36% year-on-year. Spring Airlines became the most profitable company in China's civil aviation industry that year.

As of now, seven listed airlines including Air China have released their 2024 semi-annual performance forecasts. Spring Airlines expects to make a profit of 1.29 billion to 1.34 billion yuan, a year-on-year increase of 54% to 60%, and it is still the most profitable airline in China's civil aviation industry.

Wang Zhenghua, who is 80 years old this year, has completed the handover.

On March 29, 2017, Wang Zhenghua resigned as chairman of Spring Airlines and handed over the baton to his eldest son Wang Yu.

At the end of February this year, Spring Airlines announced that Wang Zhenghua donated shares. After the donation, Wang Zhenghua, Wang Yu, and Wang Wei (Wang Zhenghua's second son) respectively held 1%, 52.9470%, and 10.7894% of the shares of the company's controlling shareholder Spring International Travel, and 1%, 42.19%, and 8.64% of the shares of Spring Charter. Wang Yu directly and indirectly held 28.91% of the company's shares.

The market's interpretation of this is that Wang Zhenghua has already handed over all responsibilities.

Wang Zhenghua publicly expressed his "satisfaction" with the operating performance in 2023 and the first half of this year, and fully affirmed Wang Yu's role as chairman.

Wang Yu basically inherited his father Wang Zhenghua's low-cost business strategy. According to reports, Wang Yu once commented on the differences between himself and his father: "In terms of management style, I prefer to make decisions based on numbers, while he is more of an entrepreneur." However, the two have the same concept of cost control. After Wang Yu took over, Spring Airlines' requirements for cost control have not decreased.

As of the end of 2023, Spring Airlines' debt-to-asset ratio was 64.40%. During the same period, the debt-to-asset ratios of the three major airlines all exceeded 80%, and Juneyao Airlines and China Airlines also exceeded 80%.

However, Wang Yu was happy but also worried.

In 2006, Spring Airlines launched a special 1-yuan ticket on its Shanghai-Jinan flight, which attracted complaints. The Jinan Price Bureau fined it 150,000 yuan for disrupting the market. Spring Airlines has long been accused of malicious competition from its peers for its low prices.

Passengers also dislike Spring Airlines' minimalist service and the uncomfortable experience of narrow-body aircraft. Although "you get what you pay for", a bad flight experience will lose some passengers.

Currently, the scope of visa-free entry has been expanded and the number of inbound passengers has increased, but whether this can bring incremental growth is a test for Spring Airlines.

In addition, Spring Airlines' refund and change policy is the focus of complaints. As of July 14 this year, there were as many as 9,119 complaints against Spring Airlines on the Black Cat complaint platform. The focus of the complaint was "too much refund fee".

How can Wang Yu strike a balance between making money and maintaining a good reputation and pass on his dream of “all Chinese people being able to afford to fly”?

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