How low fares to bring high profits: decryption Spring Airlines business model
Recently, the low-cost airline has become the aviation industry fashion vocabulary. From the ‘Guiding Opinions on Promoting the Civil Aviation Authority of low-cost aviation development’, to test the water in Chongqing aviation, Airlines, United Airlines, low-cost western transformation, now we must set up nine meta aviation, to Spring Airlines IPO. Which companies do not Air Jordan 13 seem to link these relationships and low cost, and the brothers are embarrassed to go say hello. Speaking of low-cost airline, we will have to lift the domestic low-cost pioneer – Spring Airlines. Since its inception, Spring Airlines pioneered the civil aviation industry, for better or less good number of precedent. For example, the first low-cost airline, the first overseas subsidiary of the new airline (not acquired), the cheapest airline ticket selling (Japanese line 0 yuan tickets), the only non-use CNAC letter Reservations system of airlines in recent years, the fastest growing airline, the first airline to establish a blacklist, most marketing gimmick Airlines (maid outfit, blind flight) …… However, Spring Airlines is not only eye-catching of these gimmick, its superior profitability often our attention. 2013, Spring Airlines profit margin up to 15.0%, the highest in the industry first. Air China, Hainan Airlines in the four highest, 8.8%, Air China, China Eastern, China Southern Airlines did not exceed 5%, and the Spring and Autumn have a significant gap. Of course, spring and government subsidies of up to 520 million yuan, more than half of the total profit is higher than the proportion of Air China and Hainan Airlines. For a long time, Spring Airlines has been shrouded in mystery, which in the end is not a typical low-cost airline? How does it make so much money in it? With the release of the Spring and Autumn prospectus, we seem to be able to see tip of the iceberg. Spring can be cheaper fare much money? Everyone feels cheap flights Spring, you can see such a high profit margin could not help but whisper, tickets are really cheap? In the end how much cheaper? We choose spring and the largest passenger Ten routes, excluding the Shanghai – Shijiazhuang this subsidy more routes, the estimated average ticket price of the Spring and Autumn and the average fare to fly a total full-service airlines. Data show that the Spring and Autumn tickets really cheap, with an average of 34% cheaper than full-service airlines. Among them, the most expensive ticket is relatively Shanghai – Chongqing route, equivalent to 80% of the full-service company, cheaper 180 yuan; while the cheapest ticket is Shanghai – Changchun route, the fare is only equivalent to the opponent’s tickets, cheap nearly 460 yuan. From the point of view fare, Nike Dunk SB Mens low-cost airline Spring is indeed worthy of this glorious title. Tickets are so cheap to make money? Then, tickets sell so cheap, it is how to make money? Nothing more than to increase revenue. Let me talk about income, mainly due to the low-cost airline for tourism, visiting relatives and other price-sensitive passengers, which means that fares must not be expensive, expensive no one to sit. To both for cheaper fares, but also get considerable income, age has taken the two approaches. First, increase the number of seats, which uses a single high-density cabin layout, each aircraft can be deployed 180 seats, 16 more than the A20 typical single cabin layout, more than a typical two-class layout 30. Second, the use of revenue management tools, find ways to improve the load factor, which is puerile. In Shanghai – Xiamen route, for example, Spring Airlines load factor reached 97%, while the total of full-service airlines fly only 70%. High cockpit layout combined with high load factors, Spring Airlines by ‘grasp with both hands,’ Dora class about 60 passengers. Thus, although each passenger fares about 270 yuan cheaper than its competitors, but the whole flight and a full service aviation transportation revenue is basically the same. Overall, despite the Spring air fares than the total full-service aviation fly low 34 percent, but due to the high density cabin layout and high load factors, total passenger revenue flight is only 16% lower than the opponent. Low cost is how to pull out? ‘Income above the finish, now let’s look at savings. After a rough estimate, the cost of Spring Airlines seat kilometers comparable models with full-service airlines lower third! And mostly full-service airlines have a variety of models, so the actual cost advantages will become more apparent. Well, spring is how to do it? I feel there is a major disadvantage, five trick. First, the increase in financial expenses seat kilometer 0.003 yuan. Compared with the full-service airlines, Spring Airlines is slightly higher financial expenses, mainly due to the small size and private enterprises financing difficulties caused. Hire purchase from an airplane than we can piece of a jigsaw. In general, compared with an operating lease aircraft, purchased directly at no extra cost rental company, and certainly more cost-effective. But the report, we found that Spring’s aircraft purchase rent ratio of about 1: 5, and the industry more in 1: 2-2: 1, between spring and autumn so low rent than buy, will inevitably bring about an increase in fixed costs of aircraft engines , but also the possible difficulties in financing the rapid expansion of the upset. Second, high aircraft utilization, reduce fixed costs seat kilometer 0.029 yuan. Spring aircraft utilization rate of about 11.35 hours, higher than the industry average of 2.1 hours, which is equivalent to more than a day trip to Shanghai, Qingdao fly round trip. Improve the daily utilization of aircraft engines can be effectively diluted depreciation and staff salaries and other fixed costs, which is the spring and reduce the cost of seat kilometers one of the most effective measures. Third, reduce the landing fee Shipping costs 0.005 yuan seat kilometers. According to the Bureau provides the same type of aircraft seating capacity 10% higher than the average number of seats, and the load factor of not less than 85%, passenger service charges may be appropriate to concessions. Air Jordan 13 Spring Airlines seat number 13% higher load factor higher than 90%, passenger service charge of 25% discount. Plus airport landing fee concessions, but also reduce costs. Fourth, human-computer ratio lower labor costs reduce seat kilometer 0.016 yuan. Spring Outlet high proportion (85%) less sales staff, support staff to streamline second-tier management, makes machines than only 102: Nike Air Max Excellerate+2 1, below the industry 130: 1 average. Fifth, reduce kilometer seat tickets direct selling expenses 0.022 yuan. 2013 spring and through direct marketing agency fee savings of about 200 million yuan, the use of self-developed distribution reservation, departure system saves system cost about 104 million yuan, while also saving aviation billing system service fee of about 60 million yuan. Through self-development system, about the cost of each ticket may reduce sales of about 40-50 million. Sixth, high density cabin layout effectively reduce the cost of 0.033 yuan seat kilometers. A320 typically 164 industry layout, and Spring by single cabin layout to shorten the pitch, to achieve the maximum number of 180 seats layout. Equivalent to 16 per flight can sell more tickets, greatly diluted the flight operating costs, which is the most cost-effective measures to reduce. Spring body from what we can learn? Based on the above estimates, we noticed a few interesting phenomenon. First, revenue management can be said to be the ultimate low-cost. Less than a third of the fare rivals, attract price-sensitive passengers travel, make a staggering 95 percent load factor. The guest is not only much higher than the level of domestic full-service aviation, also much higher than the world’s leading low-cost airline Southwest United States, Ryan, easyJet and so on. Second, low fares, class income is not low. Despite the low fares third, but due to the high number of seats high load factor, class income is only 16% lower than full-service airlines, especially in the biggest nine routes, Xiamen, Shenyang, Dalian, Chongqing, Changchun, Harbin on six routes class full service company with revenue similar, and even some even higher. Third, the traditional ‘good route’ but underperforming. We also note that poor earnings performance flight Shenzhen, Guangzhou, Sanya and other three routes, there are two more business travelers are ‘good route.’ ‘General Service’ eye-catching performance, but poor performance ‘good route’ to a certain extent explains the already significant Nike Air Max 97 differences in strategic positioning and market distinction between Spring Airlines and full-service airlines. So, we often say that low-cost airline wolf, wolves present situation should have come. Full service aviation should be how to deal with it? At present the domestic companies will mainly approach is pre-emptive, such as the establishment of nine yuan auspicious Airlines, Hainan’s Western Airlines, China Eastern Airlines United Airlines restructuring its low-cost, low-cost markets in the future intent preemptive hills. But whether it is a full service company in transition more difficult, even if the new low-cost subsidiary, will face a huge test dual-brand operation. Globally three decades dual-brand operation experience, the dual-brand strategy positioning both have a huge target market distinguish between differences and reduce the fighting, but also to fully enjoy the cost benefits of scale mutual cooperation, largely examines airline business art, is extremely difficult, there are few success stories. The only relatively well-known in recent years, 2015 Latest Nike Shoes Qantas and Jetstar also unclear because of market segmentation, route overlap competition began loss in. In the wave of low-cost, full-service aviation then left to die on it? In fact, this is not a low-cost airline stunt five patents, full service aviation can selectively learn and flourish. Look, a single fleet, network-based aviation forced to support and Air Jordan 10 promote dry and serve the global needs of the market, had to purchase a variety of models branch, trunk narrow, medium and wide-body long-range wide body, etc., but the whole region type service company can single fleet, such as Xiamen Airlines, Lucky and other companies have enjoyed a single fleet to bring low-cost benefits. Look Spring Airlines reduce the high cost of daily utilization from big huge effect. High daily utilization of fixed cost savings brought about are valid for all companies, especially the lack of a city of two domestic operating environment, select does not affect the main airport landing and enhance daily utilization of present, Shandong, Sichuan Airlines The utilization rate is close to 11 hours, its enormous cost benefits. Finally, efforts could fare levels from top to bottom. Low cost air fares low, flight income is not low, mainly due to the ultra-high load factor. At present, the average full-service aviation passenger load factor less than 80% of seats enormous idle resources and income loss. Idle is idle, we can put some more sophisticated revenue management do? This part of the 10% -15% of the unused seats out in advance when a virtual low-cost airline to sell? Price with low-cost carriers fairly compete price sensitive travelers. At the same time in order to avoid looting and their own passengers, the seat can be set to the virtual low-cost ultra-more than half the long-term promotion. LCC has not the concept, but the tide. In this occasion coming wave of low-cost, full-service aviation can not turn a blind eye, not retreat, and without tension, just calm down, in-depth analysis mode differences distinguish good market position, good cost optimization, will be able to form a variety of business models coexist good situation and common development. Source: China Civil Aviation Report Author: Lin Zhijie