Pinduoduo in the aviation industry makes 2.2 billion a year, why is the cheaper the ticket, the more profitable?

Barn New Domestic Products Research Institute

2024-07-26 10:17Posted on the official account of Beijing Barn Explosive Academy

1 yuan seckill, 99 yuan special, such promotional activities are not uncommon on e-commerce platforms, but appearing in the aviation industry, it is estimated that it will refresh many people's cognition, which is the killer feature of low-cost airline "Spring Airlines".

Relying on low-cost air tickets, Spring Airlines not only did not go bankrupt, but also made a lot of money, with a net profit of 2.257 billion yuan in 2023, and its profitability beat China Southern Airlines (loss of 4.209 billion yuan), China Eastern Airlines (loss of 8.168 billion yuan), Air China (loss of 1.046 billion yuan) and other peers, becoming the "most profitable" listed airline. In the first half of this year, Spring Airlines expects a net profit of 1.28~1.33 billion yuan.

Why is it that the lower the price of the airfare, the more profitable it is? What is Spring Airlines' operating secret? What lessons can be learned?

01. The price is ridiculously low, and the special ticket angers peers

In 2004, Spring Airlines was founded, and the first flight from Shanghai to Yantai was launched the following year, with a ticket price as low as 199 yuan, and 180 tickets were sold out instantly, setting a new record for the lower limit of air tickets.

Low-cost air tickets broke the inertia of the industry and made friends dissatisfied, and several airlines jointly complained about Spring Airlines' violation of the fare regulations of the Civil Aviation Administration, and Spring Airlines was forced to cancel several special flights.

Other airlines thought that after complaints, this new disruptor would be more stable, but they didn't expect Spring Airlines to be quietly doing things. In the second year, it launched a more ruthless price - a special ticket of 1 yuan (Shanghai to Jinan), which was complained by friends again and fined 150,000 yuan.

Although it is often complained about and fined, Spring Airlines has gone all the way to the dark when it comes to low-cost air tickets. In 2009, 1.4 million special tickets of 99 yuan were introduced, which are cheaper than hard seats on trains, and in 2010, the number was increased to 2 million.

At the end of 2013, the National Development and Reform Commission and the Civil Aviation Administration jointly abolished the regulations on the lower limit of air ticket prices, and Spring Airlines began to let itself go, often engaging in some special tickets of 0 yuan, 1 yuan and 9 yuan, and the price of international flights was as low as 18 yuan.

Today, Spring Airlines still conducts some special activities, 99 yuan to Japan, 100 yuan to Thailand. In addition to the special fares, the normal air ticket price is slightly lower than the ticket price of other airlines, taking Shanghai-Lanzhou as an example, the ticket departing from China Eastern Airlines at 21:35 is 770 yuan, and the ticket departing from Spring Airlines at 19:55 is 700 yuan.

02. Spring Airlines, which seems to be losing money, how to become the "most profitable" airline

Often launched single-digit, double-digit special air tickets, normal air tickets are also lower than competitors, at a glance must be a loss to make money, but what I didn't expect is that friends sell high-priced tickets to lose billions, Spring Airlines sells low-cost tickets to make a net profit of more than 2 billion.

What is Spring Airlines' secret?

Two words: save + earn.

As the saying goes, what you save is what you earn, and this sentence is vividly reflected in Wang Zhenghua, the founder of Spring Airlines.

The Airbus A320 itself is an economical model, with a total of 180 seats, and Wang Zhenghua simply removed the galley on the plane and added 6 seats.

The reason for the dismantling of the galley was that Spring Airlines did not provide free in-flight meals, which would not only save a lot of money, but also make another profit by selling in-flight meals.

In the early days of Spring Airlines, the seat pitch was small, the seat back could not be adjusted, and the small table was also replaced with a mini version, which was called the "green car in the sky".

(At present, comparing the economy class seats of several airlines' A320 series models, it seems that Spring Airlines is better, with adjustable seat backs and seat pitches of about 84 cm for Spring Airlines, 76 cm for China Eastern Airlines, and 71-89 cm for China Southern Airlines.) It seems that Spring Airlines' way of saving money has also been learned by other airlines. ）

In the early days of Spring Airlines, there was no cleaning team, and the flight attendants not only had to serve passengers, but also were responsible for cleaning, after all, the boss Wang Zhenghua personally went to the plane to clean up. (Recruitment notices circulating online show that Spring Airlines now also has a cleaning team.) ）

In order to save on fuel costs, Spring Airlines replaced the magazines on the plane with the thinnest ones to reduce the weight. When flying in the air, try to fly as high as possible to reduce flight resistance while ensuring safety. Relying on such tips, Spring Airlines can save about 30 million yuan in fuel consumption costs every year.

In terms of choosing parking stands, Spring Airlines mostly chooses farther parking stands, does not use boarding bridges, uses shuttle buses, and shortens the downtime as much as possible, so that it can save about 5,000 yuan each time.

In addition, Spring Airlines has made cost savings in many aspects, such as the ratio of flight attendants to passengers is lower than that of other airlines; No checked baggage allowance; Develop your own ticketing system to reduce third-party distribution costs; All A320 series models are selected to save maintenance and training costs.

In terms of saving money, if users can still accept it, in terms of making money, it has been complained by many people.

In terms of refund fees, Spring Airlines is much higher than other airlines, and refunds made 7 days before departure will charge 50% of the face value as a refund fee, while China Southern Airlines and China Eastern Airlines only charge 20%; For refunds after departure, China Eastern Airlines will charge 75% of the fee, China Southern Airlines will charge 70% of the fee, and Spring Airlines will not refund a penny.

Most Spring Airlines flights not only do not have a free checked baggage allowance, but also have clear requirements for baggage to be carried on board, with a volume of no more than 20×30×40 cm and a weight of no more than 7 kg. If it is a domestic flight, if you do not purchase the baggage allowance in advance, do not pay for checked baggage, and arrive at the boarding gate with your luggage, you will be charged 300 yuan for ≤ 10kg of baggage, and 500 yuan for > 10kg of luggage.

The first time I took a spring and autumn flight, I didn't read the rules carefully, and the passengers with big suitcases had already paid an extra 500 yuan before boarding, and after boarding, they would have the illusion of getting on a green train.

After the plane took off, the flight attendant pushed the dining car and began to sell food and water, a tomato stewed beef rice gave a bottle of Baisui Mountain mineral water for 38 yuan, beer + Huang Feihong peanuts + beef snacks set for 38.8 yuan (the price sold on the plane is also acceptable).

After selling food, I started selling various products such as cosmetics and duty-free goods, and the flight attendant held a megaphone to sell for half an hour, and if I woke up, I might be confused whether it was on the train or in the live broadcast room.

Save a little and earn a little more, adding up to a profit of 2.2 billion yuan a year. In the first half of this year, Spring Airlines expects a net profit of 12.8~1.33 billion yuan, a year-on-year increase of 68%~75%.

03. What did Spring Airlines do right?

Spring Airlines is positioned as a low-cost airline, and low-cost airlines are full-service airlines, and the difference between the two lies in the service model. Spring Airlines has cut some services by lowering ticket prices, or paying for services.

Are these services cut by Spring Airlines needed by passengers? Yes, but not for all passengers. Lin Tao, a flight policy research scholar, told the media that in fact, more than 60% of passengers do not need to check in baggage and in-flight meals, but all ticket prices include baggage allowance and meal service.

When all passengers come to share these costs equally, it is difficult to reduce the price of air tickets, and when the cost of baggage and meals is canceled, the air ticket price can be reduced by dozens of yuan for less, and hundreds of yuan for more, which is why spring and autumn flights are always cheaper than other flights.

There are two knowledge points involved here: core requirements and strong value points.

What are the core needs of passengers flying? The first is efficiency (punctuality), if you don't pursue efficiency, you can choose high-speed rail, and the second is safety, after all, flying in the sky, as long as something happens, it's a big deal.

In response to the core needs of users, Spring Airlines has strengthened its strong value points: high efficiency, strong safety performance, and of course, as a low-cost airline, the price of air tickets must be low, and other services are irrelevant.

According to data from the Civil Aviation Administration of China, Spring Airlines ranked first among the 12 major passenger airlines in terms of average flight regularity rate in 2023. According to the data of Flying Regular, Spring Airlines' arrival punctuality rate from January to June 2024 ranked second, first, first, third, first and second among domestic airlines, ahead of other airlines.

In terms of safety, Spring Airlines has a major accident rate of 0 per million hours of transport flights in 2023, and the related expenditure on production safety is 4 billion yuan.

On the premise of satisfying the core needs of users, we will optimize our own strong value points, and we will form a differentiation with our competitors, so as to lead our competitors.

In addition to this, Spring Airlines has a lot to learn. In the early 20s, Spring and Autumn Travel Agency used the method of "chartering seats" to help Air China make a net profit of 100 million yuan in half a year, which also made Spring and Autumn Travel Agency find that the demand for cheap flights is strong.

For example, in publicity and marketing, Spring Airlines will inevitably launch single-digit and double-digit special tickets every time it opens a route, and the special tickets are sold out instantly, forming potential energy after being reported by the media and being disseminated by users independently. Using this method early, at the risk of being fined, the market was quickly opened. On holidays, a special ticket of 99 yuan will also be introduced. Spring Airlines uses the product itself for marketing, which not only has the effect of product promotion, but also wins the market and users.

Epilogue:

A private low-cost airline can stand out from more than 40 airlines and become the most profitable airline with the highest punctuality rate, thanks to Spring Airlines' ability to grasp both the key points and details, both strategically and tactically, to an excellent degree.

The core of Spring Airlines' success is "user-centric", meeting the needs of users for low price, speed and safety, so that ordinary people can also experience the fun of flying flights.

Chinese enterprises have serious involution, most of them are prices, and most companies do not understand user needs and solve user pain points. Talk more to users, observe and observe users, and you will find that there is still a blue ocean in the red ocean.

Resources:

Chinese Entrepreneur Magazine: The most "picky" boss, "save" the next 10 billion empire

Ai Faner: Spring Airlines, which costs 99 yuan, is it really cheap?

Spring Airlines' official website, Tongcheng Travel website, Spring Airlines' 2023 financial report, etc

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Personal opinion, for reference only