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Business

Spring Airlines targets China's ascendant middle class

Chairman sees room for foreign partners in a still-underserved market

Wang Yu, Chairman at Spring Airlines (Photo by Nozomu Ogawa)

Executives from some of Asia's most influential companies gathered in Bangkok on July 14 for the second Nikkei Asia300 Global Business Forum. In a series of interviews on the sidelines, we asked some of the participants to elaborate on their business strategies.

BANGKOKSpring Airlines, China's largest budget carrier, is determined to meet growing demand for affordable travel -- but not necessarily by flying solo.

Chairman Wang Yu spoke about Chinese vacationers' changing habits and the rise of the country's middle class, which is estimated at more than 200 million. Noting that the Chinese budget market is still underserved, he expressed a willingness to work with foreign airlines and other partners to seize the opportunity.

Wang, who recently took over the chairmanship from his father, Wang Zhenghua, also touched on his plans for managing the group.

China's middle class is said to be growing at an unprecedented pace. There are a few aspects of the middle class. One is that they have become younger. We have a new generation involved in startups and the monetization of these companies. This portion is getting bigger. They don't worry about food and housing. They have more leisure time than earlier generations.

If these observations are correct, I think there are more than 200 million people who belong to this class. They hail not only from the eastern side [of the country] -- Beijing, Shanghai and Guangzhou -- but also from inland in Chengdu, Chongqing and Xi'an. Even in third-tier cities, there are hundreds of thousands of people who have joined the middle class.

Unlike older generations, these newly rich tend to do things by themselves. When they go abroad, this digital-savvy class travels individually or in a small group.

How have they impacted the airline business? The low-cost carrier model, which flourished earlier in the U.S. and Europe, is designed for these "fully independent travelers," or FITs. The purpose of travel has also changed, from sightseeing to just doing nothing but relax. [Some] demand something else -- not materialism but to learn about cultures. Twenty years ago, people went to big cities in Japan, but today, young people go to the countryside. It is the same in Thailand and other countries. There are more choices for destinations.

The budget carrier competition is heating up in China. There were less than 400 aircraft in the market 12 years ago, but today, there are more than 3,000. The supply has increased more than eightfold. But I think the demand is growing as fast. No doubt, competition has heated up, but I think it is bearable. We only have 37 passenger airlines in China, in the domestic market. In the next decade, there will be more new entrants and the competition will be even stiffer.

Budget air is the future of the short-haul market. Today, no-frills carriers only occupy about 8% of the market, compared with 50% in Southeast Asia. There is huge potential.

What about the arrival of foreign players, likeAirAsia? Competition is good for customers, not only in China but elsewhere. On the other hand, we have to work harder [to maintain] our competitive advantage. China is our home market. So we have advantages, such as branding and landing rights.

We actually knocked on AirAsia's door last year, because it had said it was interested in the Chinese market. I said we could talk. Asia is a big market for everyone -- there is room for future cooperation.

You succeeded your father as chairman. What will you do differently? We are following the philosophy, laid out by my father, that has made Spring Airlines a success. Values such as sincerity, cost-effectiveness and a focus on the use of technology will be [preserved]. We used to be a tiny airline, but today we have offices and a network across countries. We need to be more efficient in corporate governance.

Interviewed by Nikkei staff writers CK Tan and Wataru Kodaka

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