Spring Airlines: China's Low-cost Airline

Abstract:

The case is about Shanghai-based low-cost airline, Spring Airlines Ltd. (Spring), and its low cost business model. As of 2009, Spring was the only low-cost carrier (LCC) in China. The airline which began its operations in 2005 had to face many challenges in its initial year of operation but by 2006, it emerged as a successful LCC. Analysts attributed its success to its extremely low-cost business model. The case discusses in detail the operational strategies adopted by Spring to maintain its low-cost business model. The airlines' operations were based on the operational model of the most successful discounter of all time - the Dallas-based Southwest Airlines (Southwest).

Spring adopted most of the operational policies which had made Southwest so successful, but also tried to innovate further to keep costs down. As of mid-2009, Spring was struggling to meet the increase in passenger demand. In June 2009, the airline planned to offer standing-only tickets to passengers on its flights. The move was expected to cut down costs for the airline further while increasing the seating capacity. Moreover, it would lower the airfares for passengers who opted to stand during flights. The idea received mixed reactions from industry analysts, experts, and consumers. Some aviation experts dismissed the idea in view of safety concerns. Some experts pointed out that while major carriers were making efforts to recoup their losses by offering luxury services to the passengers, Spring was planning to make flying even less comfortable.

Experts felt that while Spring had done well in the Chinese civil aviation industry at a time when the major state-owned airlines were struggling, China still did not have the right environment for LLCs to flourish. For instance, Okay Airlines which had started operating as an LLC in 2005, was forced to give up the low-cost business model within eight months of its operations since it felt it was difficult to maintain such a business model and shifted to the conventional model. As such, Spring would have to overcome many more challenges to maintain its low-cost business model and sustain itself in the highly regulated industry.

Issues:

» Analyze the business model and operating strategies adopted by Spring to emerge as a successful LLC in China.

» Identify the sources of competitive advantage for Spring and the differentiating strategy it adopted to overcome competition and environmental factors.

» Study and analyze the structure of civil aviation industry in China and how it posed some serious challenges for private LLCs.

» Examine the viability of the low cost business model in the Chinese aviation industry.

» Identify the challenges that Spring Airlines faced in the Chinese aviation industry and explore strategies that it could adopt to sustain itself in the industry.

Contents:

Keywords:

Operational strategies, Cost leadership, Operational model, Business model, Low Cost Carrier, Pricing, Distribution, Competitive advantage, Standing-only tickets, Chinese aviation industry, Regulatory environment, Spring Airlines, Okay Airways

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