Spring Airlines:1H17post-results conference call takeaways

Yield: Spring attributes the passenger yield recovery mainly to yieldmanagement, especially on routes with high load factor, but less to ticketpricing increase. Management commented that yields in tier-1cities suchas Shanghai and Shenzhen recovered by double-digit in 1H17.。

    Load Factor: The 1.2ppt YoY drop in load factor in 1H17was due tonew domestic flights started during the period. However, load factor onnew routes recorded sequential improvement, according to the airline. Inaddition, the company is confident to maintain load factor at over 90%level.。

    Capacity: Spring recorded 31% YoY ASK growth in 1H17on the back ofadditional 7aircrafts. Domestic ASK expanded (+44% YoY) faster thaninternational ASK (+11% YoY). The airline plans to add another 4aircrafts(1self-owned; 3under operating lease) in 2H17E and 10fleets (operatinglease) in 2018E to maintain an annual ASK growth of c.15-20%.。

    Domestic ASK: Domestic ASK accounts for 66% of total ASK in 1H17,an increase vs. 60% a year ago. According to management, most ofthe additional capacity was added in tier-2cities such as Shenyang,Shijiazhuang, Yangzhou, Ningbo and Harbin, while ASK growth inShanghai and Shenzhen remained muted given limited slots availability.。

    International ASK: Most of the incremental international ASK was addedto Thailand market, which recovered faster than they expected despiteload factor staying low. For international routes, Spring cut somedomestic departure airports from 28to 20by the end of first-half, whilemaintained the number of international destinations unchanged at 19.。

    Cost control: Spring attributes the 42% YoY increase in operatingexpenses to faster growth in fuel cost and take-off/landing charge.Although the fuel price is likely to stay high, the company aims toreduce its cost base in 2H17E by optimizing aircraft utilization, fuel savingmeasures and operating efficiency.。