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Spring Airlines gears up to challenge peers on key route

Spring Airlines, China's only low-cost carrier, starts Shanghai-Hong Kong services on Tuesday, challenging China Eastern Airlines Corp and Cathay Pacific Airways Ltd on flights between the nation's two financial hubs.

The carrier, whose executives share hotel rooms and eat instant noodles on business trips to cut costs, is offering round-trip tickets to Shanghai's Pudong Airport from Hong Kong for as little as $117.60, including fees, on its website. That's less than half the price charged by China Eastern and Cathay Pacific, the largest airlines in Shanghai and Hong Kong.

'A budget carrier like us aims to meet demand from ordinary, cost-conscious people,' Chairman Wang Zhenghua said in an e-mailed response to questions last week. 'There are so many in China that I see huge potential for our future.'

Spring Air, which flies to more than 20 cities in China, is able to offer low fares as it fills more seats and makes more use of planes than larger rivals, Wang said.

'Spring Air may particularly affect China Eastern, whose fares are already relatively low,' said Kelvin Lau, a Hong Kong-based Daiwa Institute of Research analyst. 'Still, the limited availability of airport slots may cap the number of flights Spring Air can offer.'

Wang, 66, started Shanghai-based Spring Air with three Airbus SAS A320s in 2005, as China first allowed private investors to enter the industry. The carrier has since expanded to 21 planes, Wang said. It has 11 A320s on order, according to data on Airbus' website.

The airline is an affiliate of Shanghai Spring International Travel Service Co, part of the travel and tourism group formed by Wang in 1981, which has sales of 6 billion yuan ($900 million) a year, according to Spring Air's website.

China Eastern charges from about HK$1,960 ($252) for a round-trip Hong Kong-Shanghai Pudong flight, according to its website. Cathay Pacific's Hong Kong Dragon Airlines Ltd unit is advertising fares from HK$2,620 on its website.

'The market is a fiercely aggressive place and we'll no doubt see more and more competition,' Cathay Pacific Chief Executive Officer Tony Tyler said at a Sept 16 press conference. Cathay Pacific will offer 'competitive fares' and invest in newer, fuel-efficient aircraft to pare costs, he said.

Li Qiang, head of media relations at China Eastern, declined to comment.

Spring Air is 'actively' preparing for an initial public offering to raise funds for expansion and gain greater market share, Wang said. 'It's one of our long-term goals,' he said, without elaborating further on the timing for a share sale.

Wang holds 20 percent of Spring Air, while managers and senior staff share 75 percent. The remaining five percent is owned by the Shanghai district government.

The carrier, which operates charter flights to Ibaraki Airport, northeast of Tokyo, is planning to add more overseas services to cities within five hours of Shanghai, Wang said.

Low-cost carriers, led by Ryanair Holdings Plc and Southwest Airlines Co, pare costs by shunning services such as free food and in-flight entertainment and by using a single type of airplane to ease training and maintenance. They also strive to operate as many flights as possible per day to boost sales.

Passenger numbers at Chinese airports jumped 18 percent in the first eight months of the year as economic growth spurred travel. Airlines in the Asia-Pacific region will likely post a $5.2 billion profit this year, the highest for any region worldwide, the International Air Transport Association said on Sept 21. That was more than double an earlier forecast.

Bloomberg News

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