Spring out with draft IPO plan; United counts the cost of winter delays

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By TESTCustomwebLP TESTCustomwebLP April 25, 2014 19:39

Spring out with draft IPO plan; United counts the cost of winter delays

Airline initial public offerings (IPOs) are experiencing a resurgence of late – last year saw the successful listing of Volaris and Pegasus with Interjet, Hong Kong Airlines, Vietnam Airlines and potentially Virgin America seeking to list this year. Spring Airlines has now released its draft IPO plan that sets out its aim to raise 2.53 billion yuan ($405 million) with an offering of 100 shares listing in Shanghai.

The Chinese carrier wants to use the proceeds to fund the expansion of its current fleet of 39 A320s with the purchase of up to nine more A320s and three flight simulators.

Following the release of its draft IPO proposal by the Chinese Securities Regulatory Commission, the airline will now progress through several rounds of feedback and reviews before receiving the regulator’s approval to launch the listing in Shanghai.

Spring Airlines stock should perform well since the carrier has been consistently profitable and in 2013 it posted a 17% increase in net profit to 732 million yuan, with revenue up by 16.5% to 6.56 billion yuan.

Meanwhile, United Airlines Q1 figures disappoint owing to the impact of winter weather on profit. During the first quarter of this year United incurred a net loss, excluding special items, of $489 million. Including special items the net loss was $609 million. The airline’s total revenue was relatively flat during this three-month period at $8.7 billion. United cancelled a total 35,000 flights during this period, which Jim Compton, United’s chief revenue officer, compared to “the equivalent of not flying for seven of the 90 days of the past quarter”.

Chief Financial Officer John Rainey said that he was “extremely disappointed” with the results. The results were compounded by the fact that United’s rivals, which also suffered delays to the bad weather, did not post losses during the quarter.
Chief Executive Officer Jeff Smisek deflected comments from analysts that the airline has run out of excuses as to why it is failing to yield results. Smisek called the airline’s financial performance “well below what we can and should achieve”. He also admitted that the airline operates “really inefficiently today” and that “our customer service historically since the merger has not been as good as it should be”.

To counter this inefficiency, United has launched Project Quality in a bid to reduce costs by up to $300million in 2014 through closer integration with Continental – the two airlines are still operating dual systems for example.

United will streamline its revenue management by taking fewer earlier bookings to leave more seats available for sale closer to the day of the flight, while also better coordinate arrivals and departures at its Denver and Houston hubs to shorten connection times. United has also increased the use of dynamic pricing for seat fares that tailors seat class upselling to the specific customer. Finally the airline has begun to exchange larger and smaller aircraft on routes to more efficiently match demand. With the market questioning Smisek’s position, he will be hoping that Project Quality can deliver results and soon.

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By TESTCustomwebLP TESTCustomwebLP April 25, 2014 19:39
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