Spring Airlines, China's largest low-cost airline, has received a formal approval from the China Securities Regulatory Commission (CSRC) to hold an initial public offering next year to fund its rapidly expanding fleet, according to the Beijing News.
This also means that the Shanghai-based airline will become China's first listed low-cost carrier. The company plans to raise 1.76 billion yuan (US$283 million) to help buy nine Airbus A320s, which wil l cost about 1.33 billion yuan (US$214 billion) in total at list price. It also wants to buy three A320 flight simulators for a total of 300 million yuan (US$48 million).
The government recently announced more policies to support budget airlines, and the campaign to crack down on corruption and excessive government spending has also created room for the development of budget carriers, the report said.
Despite the enormous potential of the budget airline market, as a privately run company, Spring Airlines still has multiple difficulties in infiltrating a market dominated by state-owned giants in China, according to the report.
First of all, while the company is working to attract customers by cutting costs and offering low ticket prices, it is facing the challenge of letting passengers accept a different business model, where no free food or drinks are served during the flight and no products are sold on board.
Spring Airlines has been planning to get listed for some time. It first started drawing up plans to float its IPO in 2006, but shelved the idea due to the financial crisis in 2008. There were further efforts to restart the IPO process in 2009 and 2011, but these were also cancelled as the A-share market was performing poorly.
The company submitted its listing application in Jan. 2011, but ran into a 14-month listing freeze that only ended at the beginning of this year.
A previous application earlier this year was rejected when a CSRC audit of the low cost carrier raised concerns over the airline's disproportionately high profits compared with the state subsidies received and over allegations about transactions related to Spring Travel.
Over the past three years and six months, Spring Airlines has garnered 1.72 billion yuan (US$276 million) in government subsidies.
As airlines are the main driver behind China's economic growth, the government usually provides subsidies to encourage airlines to operate on less popular routes.
The company's profits in proportion to local government subsidies are too high, which could make it heavily financially reliant on the government, according to the CSRC report.
The company submitted additional documents to meet the regulator's requirements and address the government subsidy issue, said company spokesperson Zhang Wu'an.
Spring Airlines is also facing strong competition from new low-cost carriers, foreign airlines and adapting traditional airlines. As well, the success of the high speed rail is cutting into business, according to its listing prospectus.
Despite the multiple difficulties it is encountering, the company will continue to accelerate its pace of growth, Zhang said. The airlines will own 46 Airbus A320s by the end of this year.
The company will continue to expand its network to Northeast Asia and Southeast Asia. "It plans to purchase 10 airplanes next year and deploy at least six of them on international routes, according to Zhang.
Source: Want China Times
from China Travel & Tourism News http://www.chinatraveltourismnews.com/
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