Spring Air Soars 44% After Shanghai IPO to Fund Expansion

By Clement Tan

Spring Airlines Co. rose by the exchange-imposed limit in its Shanghai trading debut after staging the first initial public offering of a Chinese airline since 2002 to help meet surging demand in Asia’s largest economy.
The shares opened at 26.15 yuan, 44 percent higher than the 18.16 yuan price in the IPO, and stayed at that price throughout the day. The offering of A-shares raised 1.8 billion yuan ($290 million). The new stock from the IPO represents 25 percent of Spring Air’s total base of 400 million shares.
“Not many new entrants can boast a similar earnings potential,” Zhang Qi, an analyst with Haitong Securities in Shanghai, said by phone. “Longer-term, Spring looks like a good investment.”
Spring Air plans to buy new aircraft as rising incomes drive up demand for air travel across Asia. The company, founded in 2005 by President Wang Zhenghua, is also bracing for more domestic competition after China’s Civil Aviation Administration said last year it would loosen regulations and study tax breaks to encourage more budget carriers in the country.
Since then 19 new airlines have been started or have announced plans in China, with two slated to operate as low-fare carriers, according to a Nov. 19 estimat
e by the CAPA Centre for Aviation. Shanghai-based Juneyao Airlines Co. has said it also plans to go public as new airlines start up across the country.

Photographer: Tomohiro Ohsumi/Bloomberg

A Spring Airlines Co. aircraft taxies on the tarmac at Shanghai Pudong International... Read More

Budget Transformation

Guangzhou-based budget carrier 9 Yuan Airlines, a Juneyao Airlines subsidiary, offered its first flight last month. A low-fare carrier based in Zhengzhou, an Apple Inc. (AAPL) manufacturing hub, is in the planning stages, according to the aviation consultancy.
State-owned China Eastern (670) Airlines Corp. converted China United Airlines, a Beijing-based subsidiary, into a budget unit in July.
“Some airlines have officially transformed to LCCs but now have to implement LCC practices,” including charging passengers separately for baggage, meals and the like, Will Horton, a Hong Kong-based analyst at CAPA, said in an e-mail. “It won’t all be done this year, and probably not next year.”
Changes in the aviation sector since Xi Jinping became China’s president in 2013 are part of a broader attempt to allow market forces a greater role in setting prices.

Price Deregulation

China’s top economic planner and the Civil Aviation Administration on Jan. 4 further deregulated air ticket prices. Airlines can now raise base fares -- which had been stable since 2004 -- on many routes, Vivian Tao, an analyst at Citigroup Global Markets Asia, wrote in a Jan. 5 note.
Morgan Stanley analysts predicted Chinese domestic seat capacity will grow 10.5 percent this year, and said in a Dec. 16 note that the establishment of new carriers might push it even higher.
Spring is also seeking a foothold in aircraft leasing. Its application to start an air-leasing company in the Shanghai Free Trade Zone was approved in November, Tian Chao, Spring’s finance manager, said in a telephone interview.
Spring has drawn attention by having employees and cabin crew once dress as Spiderman and other characters, and by having flight attendants wear Google Glasses to see how the device can improve customer service.
Spring will use the money from its IPO to buy as many nine A320 jets and three flight simulators, according to a Dec. 19 prospectus. Wang said in September he intended to use the funds to offer flights to more destinations and raise the proportion of international passengers and revenue from 18 percent to about 25 percent by the end of 2015.
On Jan. 12, China’s Civil Aviation Administration announced it had approved Spring Air to fly to Osaka, Japan from secondary Chinese cities Zhengzhou, Xi’an and Chengdu.