GO BIG OR GO HOME

Spring Group is plan­ning to pull out all the stops as it seeks to ag­gres­sively ex­pand its busi­nesses in the ho­tel sec­tors across Asia

China Daily (Canada) - - SHANGHAI - By WANG YING in Shang­hai

wang_y­ing@chi­nadaily.com.cn

A se­ries of ma­jor de­ci­sions re­gard­ing the growth of Spring Group will be made in the com­ing weeks, said the com­pany’s founder and chair­man Wang Zhenghua.

“I used to be con­ser­va­tive when it came to mak­ing de­ci­sions for the com­pany, but af­ter at­tend­ing the lat­est share­hold­ers’ meet­ing and hear­ing our share­hold­ers’ voices, I’ve re­al­ized that we need to make changes now,” said the 72-year-old.

One of the moves will be to aban­don his fa­vored light-as­set strat­egy to pur­sue a more vig­or­ous ex­pan­sion of the group’s ho­tel busi­nesses out­side China.

The Shang­hai-based group has al­ready been ex­pand­ing its busi­ness scope in the past few years, with one of the lat­est de­vel­op­ments be­ing the launch of a new ho­tel brand in Ja­pan in Oc­to­ber 2015.

The SpringSunny Ho­tel project marked Spring Group’s first foray into the over­seas ho­tels sec­tor and is a joint ven­ture be­tween the group’s Shang­hai Spring In­vest­ment Man­age­ment Co Ltd and Ja­pan’s Sun Fron­tier Fu­dou­san Co Ltd, a Tokyo-listed prop­erty ser­vice provider.

Wang said that the idea to open ho­tels first sur­faced in 2014 when its air­line arm re­ceived feed­back about the lack of ho­tels in Osaka af­ter it had launched di­rect flights con­nect­ing sev­eral Chi­nese lo­ca­tions to the Ja­panese city.

Lu Ronghua, gen­eral man­ager of Shang­hai Spring In­vest­ment Man­age­ment, said that the com­pany plans to open be­tween 15 to 20 SpringSunny ho­tels in Ja­pan for the ini­tial phase.

“The first ho­tel, which is lo­cated in Nagoya, was a hit with trav­el­ers dur­ing the trial op­er­a­tion that took place in the past two months. Both room rates and the pop­u­lar­ity of the ho­tel were on the rise,” said Wang, who re­vealed that an­other ho­tel in Osaka will open later this year.

Over the next three to five years, the two par­ties plan to in­vest more than 20 bil­lion yen ($166 mil­lion) to ex­pand­ing the ho­tel chain in Ja­pan’s tourism hotspots. Wang has also hinted at the pos­si­bil­ity of de­vel­op­ing ho­tels in South Korea, Thai­land and South­east Asian cities that are pop­u­lar des­ti­na­tions with Chi­nese tourists. He added that as many as 100 ho­tels are cur­rently seek­ing co­op­er­a­tion op­por­tu­ni­ties with Spring Group.

In an­other move to di­ver­sify its tourism ser­vices to at­tract more do­mes­tic pas­sen­gers, Spring Group signed a strate­gic agree­ment with Ja­panese consumer elec­tron­ics re­tailer Bic Cam­era Inc in De­cem­ber 2015 to tap into the grow­ing ex­pen­di­ture of Chi­nese trav­el­ers in Ja­pan.

Ac­cord­ing to their plan, Spring Air­lines will pro­mote Bic Cam­era at its check-in coun­ters, in its cab­ins and within its flight net­work, while Bic Cam­era will ad­ver­tise Spring at its re­tail stores. The Ja­panese re­tailer will also of­fer dis­counts on goods to Spring air-ticket hold­ers.

Fur­ther co­op­er­a­tion be­tween the two com­pa­nies is ex­pected to take place af­ter Bic Cam­era made a 1 bil­lion yen ($8.27 mil­lion) in­vest­ment into this joint ven­ture ear­lier this year. Bic Cam­era op­er­ates 34 self-branded stores in Ja­pan’s ma­jor busi­ness ar­eas and trans­port hubs, as well as 200 sites across the country.

Wang can be con­sid­ered a late bloomer among his peers, hav­ing be­come an en­tre­pre­neur at the age of 40 af­ter leav­ing the pub­lic ser­vice in Shang­hai. He es­tab­lished Spring Trav­el­ing Agency in 1981 us­ing a cap­i­tal of just 1,000 yuan ($155) and had within a decade turned the com­pany into the lead­ing tourism agency in China.

Dis­sat­is­fied with the sta­tus quo in 2004, Wang then cre­ated a mile­stone in China’s avi­a­tion his­tory by launch­ing the low-cost Spring Air­lines to give more Chi­nese peo­ple a chance to ex­pe­ri­ence flight travel.

Although air­line com­pa­nies al­most al­ways fail to make prof­its in the first three to four years of their oper­a­tions, re­gard­less of how well they are ran, Wang and his team man­aged to do so in just one year, and us­ing only three planes.

Hav­ing mir­rored the suc­cess of the world’s first bud­get car­rier, South­west Air­lines, Wang’s com­pany went on to ex­pand its fleet to its cur­rent size of 52 planes. The com­pany ex­pects to have a fleet of 100 planes by 2018.

Wang’s ag­gres­sive ex­pan­sion was backed by the car­rier’s high seat uti­liza­tion, a key in­di­ca­tor that re­flects a car­rier’s op­er­a­tional ef­fi­ciency. The av­er­age seat oc­cu­pancy rate of Spring Air­lines in 2015 was 95 per­cent. Even dur­ing a lull in mar­ket ac­tiv­ity in 2012, Spring Air­lines nev­er­the­less main­tained a uti­liza­tion of up to 95 per­cent, a stark con­trast to the in­dus­trial av­er­age of be­tween 79 and 80 per­cent.

“Seat uti­liza­tion is the life­line of an air­line and a car­rier usu­ally has to reach be­tween 70 and 75 per­cent to strike a bal­ance,” said Li Lei, an in­dus­trial an­a­lyst with Minzu Se­cu­ri­ties.

Ac­cord­ing to Li, ac­cu­rate mar­ket po­si­tion­ing and ef­fec­tive mar­ket­ing and sales cam­paigns are es­sen­tial to se­cur­ing high seat uti­liza­tion for a car­rier. He added that Spring Air­lines also had good pas­sen­ger flow cour­tesy of its par­ent com­pany Spring Trav­el­ing Agency.

Spring Air­lines en­joyed a higher growth rate in its in­ter­na­tional routes than do­mes­tic ones in 2015. More than 30 per­cent of Spring Air­lines’ flights are bound for des­ti­na­tions be­yond Chi­nese main­land such as South Korea, Thai­land, Cam­bo­dian, Sin­ga­pore and Malaysia.

He Jian­min, a pro­fes­sor at the Shang­hai Univer­sity of Fi­nance and Eco­nom­ics who spe­cial­izes in tourism man­age­ment, said the de­vel­op­ment of Spring Group pro­vides a good ex­am­ple of in­dus­trial chain de­vel­op­ment.

I used to be con­ser­va­tive when it came to mak­ing de­ci­sions for the com­pany, but af­ter at­tend­ing the lat­est share­hold­ers’ meet­ing and hear­ing our share­hold­ers’ voices, I’ve re­al­ized that we need to make changes now.” founder and chair­man of Spring Group

PRO­VIDED TO CHINA DAILY

Wang Zhenghua, the founder and chair­man of Spring Group, started the com­pany more than 30 years ago with a cap­i­tal of only 1,000 yuan.

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