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
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
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.