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Fri, Jul 13, 2012

Private Airline In China Carves Big Stick By Walking Softly

Grows Market Share Showing Deference to State Owned Competition

 China has one of the world's fastest growing aviation markets, even though its primary airlines are all state owned. It's no surprise then that a small independent, budget fare airline would find the going difficult. Yet Wang Zenghau has built the country's most successful budget fare carrier, Spring Airlines, by following a simple philosophy for coexisting with the bigger government backed competition.

 "You have to take it a bit slowly, rather than being too aggressive and making enemies everywhere," says Wang, founder and chairman of Shanghai-based Spring Airlines, of the approach that has enabled him to successfully carve out a piece of the $56 billion-a-year Chinese airline industry.

 Launched in 2005, Spring Airlines made 470 million yuan in profit in 2010, not a bad year for a businessman who in 1981 was running a small travel agency. Yet it has not been easy, with obstacles at each turn and often the strongest resistance from the competitive state-owned airlines.

 "Whenever we open a new route they get tense, and sometimes they take an unfriendly approach," Wang said in an interview with Business Standard. "The approving authorities are also in a tough position - they're afraid of the big companies."

 Those "approving authorities" have been known to hold applications for new prized routes for many years, and even when granted, Wang's airline gets the least advantageous slots possible. For example, on his Shanghai to Beijing route his planes arrive after midnight and leave before 7 a.m.

 Having learned from those difficulties, Wang now takes a more conciliatory approach. "Whenever we want to fly somewhere new, we first get in touch with the big companies flying there, tell them we're starting flights, explain that we have a different segment of the market ... and ask for their support and guidance," he said.

 His more deferential strategy has paid dividends, building Spring into a successful independent carrier with nearly 60 routes in China and seven overseas. All of this in a marketplace littered with the debris of other similar attempts that have failed.

 Wang's experience illustrates the challenges faced by China's independent businesses. Pushed on the one hand by the Beijing government to play a larger role in driving the country's growing economy only to face restrictive opposition from the more dominant state owned industries.

The key is what we in the U.S. would call "thinking outside of the box." In China, that means learning to play and succeed on the sidelines of the playing field. Kent Kedl, managing director of Greater China and North Asia for Control Risks explains it this way, "There are some companies that are finding it profitable to be working at the edges. You don't necessarily have to be in the scrum, in the centre, to make money in China."

An economic slowdown in China is currently helping Wang's Spring Airlines, sending business to his low fare airline while the company is currently applying for an initial public offering (IPO) in Shanghai. Together Wang hopes this will lead to an expansion of his fleet of 31 Airbus 320s.

Wang is hopeful that times (and the business climate) are changing in China though his experience has left him with no illusions. 'Fairness," he told the Business Standard, "is all relative."

FMI: http://www.china-sss.com/en/



 


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