Budget strategy helps China's Spring Airlines shares surge on debut

Beijing

SHARES in China's Spring Airlines Co Ltd surged more than 40 per cent on their debut on Wednesday as investors scrambled to buy into China's biggest budget carrier, encouraged by its cost-cutting and innovative strategies.

Spring Airlines is the first Chinese carrier to list on a domestic stock exchange since the 1999 trading debut of Hainan Airlines Co Ltd.

Spring raised US$400 million via an initial public offering that was more than 160 times over-subscribed. The stock rose 44 per cent, or limit-up, on the Shanghai stock exchange to 25.15 yuan. "I don't think airlines shares overall are good investment for the longer term given their high operating cost and the cyclical nature of the industry," said Gao Liangyu, an analyst with Huatai Securities. "However, Spring's no-frills model and flexibility have helped to differentiate itself from others just like Southwest Airline had done in the United States."

Analysts also put down Spring's strong debut to the scarcity of new share offerings in China, where all IPOs are subject to stringent regulatory approvals.

Spring offered via its IPO up to 100 million shares, or 25 per cent of its enlarged equity. The airline said that it plans to use the IPO funds to double its number of aircraft to 100 by 2018. It has managed to undercut rivals such as state-owned China Eastern and its subsidiary Shanghai Airlines, largely due to stringent cost controls and workarounds.

It reported an average load factor of 95 per cent last year - the highest among Chinese carriers - and has been profitable since its first full year of operation in 2006.

In 2013, Spring reported a 17 per cent rise in net profit to 732.2 million yuan (S$159.1 million). For the same year, net income of larger rival China Eastern fell 25 per cent to 2.4 billion yuan. REUTERS