8 yuan to fly to Japan, what kind of money does Spring Airlines earn?

Flexible marketing strategies, coupled with extreme cost control, allow Spring Airlines to sell the cheapest tickets and make the most money

Text | Deng Xia, Wang Jingyi

Edit | Wang Jingyi

"8 yuan from Shanghai to Osaka" made Spring Airlines popular again.

This low-cost airline uses a price cheaper than a takeaway meal at every turn to realize the "poetry and distance" of migrant workers. Last year, it made a huge profit of 2.1 billion to 2.4 billion yuan, ranking first among Chinese airlines, and even more than the profits of the other six listed airlines combined.

Selling the cheapest tickets and making the most money, Spring Airlines is the perfect way to describe it.

Spring Airlines told Carcaijing that the 8 yuan special ticket campaign was to increase the sales of off-season flights. At present, the peak travel season for the Spring Festival holiday has passed, and there is still some time before the next peak season for cherry blossom viewing in Japan. At this time, some one-way promotions from Shanghai to Japan will be very helpful for the sale of flights from the overall consideration of the round-trip journey.

Spring Airlines' flexible marketing strategy has helped Spring Airlines achieve "high load factor, high aircraft utilization" and continuous revenue growth, while the cost control of "single aircraft type, single cabin" has made its cost lower than that of other airlines.

The data is more proof that Spring Airlines earns more and spends less. In 2023, Spring Airlines carried more than 24 million passengers, with a load factor of 89.4%, leading the industry in load factor, and according to SDIC Securities, the cost per unit of ASK (available seat kilometer) in 2022 was 0.38 yuan, lower than the average of 0.78 yuan for the three major airlines.

"Half of the money is earned, half is saved. "Spring Airlines founder Wang Zhenghua's classic quote tells everyone that making money is so simple.

01

8 yuan to go to Japan, limited time and limited quantity

On February 19, some netizens found that the minimum price for buying a Spring Airlines ticket from Shanghai Pudong International Airport to Osaka Kansai International Airport in Japan in mid-March was only 8 yuan.

In Shanghai, 8 yuan can't even buy a breakfast for a migrant worker, but can you buy a ticket to Japan?

Figure/Network

In this regard, Spring Airlines told Carcaijing that the special ticket activity did happen, but it only lasted for a week or two, and it has now ended. It can also be found from the official website of Spring Airlines that there is no longer a special ticket of 8 yuan.

As soon as the event was launched, some netizens commented: "8 yuan when you go, 8000 when you come back." It is implied that there is a lot of marketing behind this kind of special ticket. The reality is certainly not so exaggerated. But it is undeniable that at this time, the airline has its own considerations for launching special fares.

Spring Airlines said that the 8 yuan special ticket campaign is precisely to increase the sales of off-season flights. At present, the peak travel season for the Spring Festival holiday has passed, and there is still some time before the next peak season for cherry blossom viewing in Japan. At this time, some one-way promotions from Shanghai to Japan will be very helpful for the sale of flights from the overall consideration of the round-trip journey.

In fact, Spring Airlines' introduction of special fares is not new.

In 2022, Spring Airlines launched the virtual platform "Infinite Space", which gathers special air tickets from all over the country at home and abroad, with fares of 59 yuan and 99 yuan for the most. Special tickets as low as a few yuan have also appeared before, and last month, a netizen discovered that Spring Airlines' special ticket from Shijiazhuang to South Korea only costs 9 yuan for a one-way trip.

Photo/Spring Airlines applet

Spring Airlines told Carcaijing that this kind of special ticket often has some common characteristics: first, the duration of the activity is short, only 1-2 weeks; second, there are restrictions on the departure date that can be selected, for example, the launch of 8 yuan from Shanghai to Osaka, the optional time is from late February to mid-March, only three weeks, the time is relatively short; third, the one-way nature is more obvious, generally one-way tickets.

02

The ticket price is 8 yuan, and the tax is 402 yuan?

It is important to note that the fare does not equal the full cost of the passenger's actual boarding. For example, on the ticket from Shanghai to Osaka, there is a line of small letters that say "tax ¥402" under the big character of 8 yuan.

"There are three parts of the tax, one is the international tourist tax set by the Japanese government, the second is the fuel surcharge, which varies depending on the distance, and the third is the airport tax, which varies from airport to airport. Li Hanming, a person in the civil aviation industry, told a passenger (ID: carcaijing).

As we all know, in addition to the fare marked by the airline, the air ticket also has a mechanical/fuel fee. In the case of international air tickets, passengers may also need to pay additional taxes such as entry tax, departure tax, transit tax, etc. The specific types and amounts of fees vary from country to country, and are generally collected by airlines when passengers purchase air tickets.

Taking Japan as an example, in 2019, Japan officially implemented the "International Tourism Promotion Law", announcing that foreign tourists and Japanese citizens visiting Japan will be subject to an exit tax of 1,000 yen (about 48 yuan) per person when leaving the country. This fee is included in all passenger tickets departing from Japan, except for children under the age of two, transit passengers destined for other countries, and flight attendants.

In addition, some airports in Japan charge for the use of international passenger service facilities and a passenger security service fee, which are also charged at the same time as the purchase of air tickets.

Screenshot of All Nippon Airways 2019 notice

Source: The company's official website

The above fees need to be paid regardless of whether you choose low-cost airlines or general airlines. The reason why low-cost airlines are "cheap" is that they achieve the greatest degree of differentiated pricing.

If you don't need checked baggage, don't need food... Then the cost can stop there. However, if there is some other need, the passenger will also need to "pay as you go" for each service.

Some netizens shared that they bought the 8 yuan special ticket, plus taxes and 20KG luggage, and the final round-trip landing price was 890 yuan.

03

Sell the lowest ticket price and make the most profit

Whenever low-cost airlines launch eye-popping ultra-low special tickets, there are always netizens worried: "Do airlines really make money?" In this regard, Spring Airlines' financial report said that everyone was too worried.

Contrary to the imaginary "tight" financial situation of low-cost airlines, low-cost airlines represented by Spring Airlines are actually "rich".

On January 31, Spring Airlines (SH.601021) announced that it expects the net profit attributable to shareholders of listed companies in 2023 to be 2.1 billion yuan to 2.4 billion yuan. Compared with the same period last year, it will achieve a turnaround.

Spring Airlines' profitability is "far ahead" among the seven listed airlines in China, and even exceeds the other six combined.

According to the announcements of various companies, China Eastern Airlines, China Southern Airlines, China Express Airlines, and Air China will still lose money in 2023, with losses of 6.8 billion, 3.5 billion, 930 million, and 900 million yuan, respectively. Hainan Airlines and Juneyao Airlines turned losses into profits, with profits of 450 million yuan and 880 million yuan respectively.

How to sell the cheapest tickets and make the most money? Spring Airlines founder Wang Zhenghua's classic quote: "Half of the money is earned, half is saved", pointing out the secret of high profits.

High load factor and high aircraft utilization are the business objectives pursued by Spring Airlines.

In 2023, Spring Airlines' load factor for the year was 89.4%, ranking first among the seven listed airlines, and significantly ahead of other airlines, ranging from 73.3% to 83.5%.

In addition, according to official disclosures, Spring Airlines will carry more than 24 million passengers in 2023, an increase of 77.4% and 7.8% compared to 2022 and 2019, respectively, the highest since the company's inception.

Spring Airlines' high passenger traffic in 2023 is not only due to the overall recovery of the industry and the high attractiveness of low-cost air tickets to price-sensitive passengers, but also the continuous optimization of the network structure.

Zhongtai Securities pointed out that although Spring Airlines' market share in first-tier cities decreased by 0.1% compared with 2019, the sinking second- and third-tier cities have brought new profit growth points to the company. In the summer and autumn of 2023, Spring Airlines' domestic schedule in first-tier and second-tier cities increased by 3.26% and 3.91% respectively compared to 2019.

The second- and third-tier cities that are actively investing in capacity not only allow Spring Airlines to receive more government subsidies, but also develop a larger market "blue ocean" for the company. Zhongtai Securities pointed out that from 2015 to 2019, Spring Airlines' passenger throughput CAGR (compound annual growth rate) in Shijiazhuang, Yangzhou, Ningbo, Nanchang and other bases was significantly higher than the industry average.

Entering 2024, Spring Airlines told Carcaijing that the current capacity arrangement, total number of flights and passenger trips on domestic routes have far exceeded those in 2019, and international routes are still steadily recovering, subject to factors such as the strength of foreign airports, from the perspective of the Spring Festival in 2024, the capacity will recover to about 6% of 2019.

04

Earn while saving

Good performance, on the one hand, is revenue, and on the other hand, cost control.

In terms of revenue, Spring Airlines is also adept at providing a variety of "diversified services". Cabin meals, checked baggage allowance, seat selection services and other items that other airlines may be free or redeemable for points are all opportunities to make money.

In the first half of 2023, Spring Airlines' main business revenue was RMB7.861 billion, while other business revenue was RMB169 million.

In terms of "picking", Spring Airlines has achieved the extreme. Specifically, it is the "two orders (single model, single cabin)" model that has always been adhered to.

The Airbus A320 family is the "old buddy" of Spring Airlines. Unlike other airlines, which are equipped with a wide range of aircraft, Spring Airlines' entire fleet is based on the A320 family of narrow-body aircraft.

With a single aircraft configuration, Spring Airlines has maximized the scale effect in terms of amortizing non-fuel costs such as aircraft maintenance. In recent years, the newly introduced Airbus A320neo model has further helped the company save about 15%-16% of theoretical fuel consumption, so that Spring Airlines has basically achieved a cost advantage in fuel consumption.

In addition, Spring Airlines only offers a single economy class. Although it sounds a bit "cold", some netizens ridiculed it as a "green train" in the aviation industry, but in terms of cost control, it has brought tangible benefits to the company.

The space freed up by business class and first class allows Spring Airlines to provide about 10%-15% more seats under the same aircraft type than other airlines, and also makes the company's already low unit cost amortized "thin and thin".

It's abstract to say, but the data is more intuitive. In the first half of 2023, Spring Airlines spent RMB296 million on aircraft and engine maintenance, while China Southern Airlines spent RMB4.85 billion, 16 times that of Spring Airlines.

Of course, China Southern Airlines, as the largest airline in China, has a fleet size several times that of Spring and Autumn Airlines. As of the first half of 2023, Spring Airlines has a fleet of 120 aircraft and China Southern Airlines has a fleet of 897 aircraft.

If the expenses are amortized to each aircraft, Spring Airlines' expenditure on aircraft and engine maintenance averages 2.47 million yuan per flight, and China Southern Airlines' expenditure is 5.41 million yuan per flight, which is twice that of Spring Airlines.

In terms of aviation fuel costs, Spring Airlines spent an average of 20.93 million yuan per flight, while China Southern Airlines spent 25.41 million yuan per flight, the latter also slightly higher.

Spring Airlines told Carcaijing that in 2023, non-fuel costs have recovered to the same level in 2019, laying a good foundation for the recovery of the whole year.

On the one hand, "open source", on the other hand, "throttling". Spring Airlines uses its strength to tell everyone that low-cost airlines can also make money.