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JuneYao Airlines was formally listed to compete for “top stock in private airlines”
ReleaseDate: 2015-05-27

 May 27, 2015   21st Century Business Herald

 

Double brand model-operated JuneYao Airlines finally landed on the A share market.

On May 27, Shanghai JuneYao Airlines Co., Ltd was formally listed on the Shanghai Stock Exchange, stock code 603885. Although JuneYao Airlines and Spring Airlines (601021.SH) filed for IPO almost at the same time last year, their final listing time was staggered by over 4 months.

Founded in 2006, JuneYao Airlines was formerly a Wenzhou charter flight company under JuneYao Group. Ten years after setup, the company now has become a medium-sized airline company with 45 aircrafts (including 3 aircrafts of its subsidiary brand Jiuyuan Airlines), and a representative of the few high-quality private airlines in China today.

According to its prospectus, JuneYao Airlines’s net profit in the past three years are respectively 229, 339 and 415 million yuan, in the first quarter of this year relevant figure reached 267 million yuan, up sharply by 163.33% on Y-o-Y basis.

With its listing time coinciding with a period of bullish market trend, JuneYao Airlines’ share price was considered promising by securities companies and industry insiders alike. What follows closely behind is the intrigue of which will capture the title “top stock in private airlines by market value”.

Originating from Shanghai, and with similar fleet size, the two private airlines have long been targets of mutual comparison. Nevertheless, unlike Spring Airlines’ focus on the positioning as low-cost airline, JuneYao Airlines is positioned as a full-service airline for mid to high end market. As its controlled Jiuyuan Airlines started operation based in Guangzhou, JuneYao Airlines currently has become the only private airline in China with dual bases, two brands and double business model.

“Full-service + low-cost” route initially emerged

According to the prospectus, JuneYao Airlines’ registered capital is 500 million yuan, it plans to issue 68 million shares to raise 715 million yuan. Relevant funds will be used to introduce 7 A320 aircrafts and two backup engines.

JuneYao Airlines fixed its issue price at 11.18 yuan, lower than Spring Airlines’ 18.16 yuan / share. After listing, it immediately became the sixth airline companies listed on China’s A share market.

As it turned out, at the inception of JuneYao Airlines, China for the first time opened civil aviation industry to private capital, which stirred up a trend of setting up airlines with private capital nationwide. Apart from JuneYao Airlines and Spring Airlines, OK Airlines, United Eagle Airlines, and East Star Airlines all were set up around that time, but the latter two brands now have disappeared from the airline market. In comparison, JuneYao Airlines, which is positioned at mid to high end business and leisure passengers, acquired increasingly smooth development.

Unlike the model of Spring Airlines whose several dozen senior executives hold company shares, JuneYao Airlines presents typical features of a family business. According to its shareholder structure, controlling shareholder JuneYao Group holds 81.02% equity, JuneYao Investment and Wang Junhao, one of the three brothers of JuneYao’s founders, respectively holds 3.46% and 5.52% equity. Furthermore, Panshi Baoqi, Rolyin Investment and Dazhong Transportation, which are strategic investors introduced by JuneYao Airlines, respectively holds 7%, 1% and 2% equity.

The journalist learned that, by the day of listing on May 27, JuneYao Airlines already had 42 aircrafts in operation, which included 35 A320 and 7 A321, by the end of this year JuneYao Airlines’ fleet will grow to 50. Though it has no way to compare with three major airlines “Air China, China Eastern and China Southern” and regional airlines such as Sichuan Airlines and Xiamen Airlines, among domestic airline companies it has joined the ranks of medium sized airline companies.

Furthermore, JuneYao Airlines also controlled Guangzhou-based low-cost airline Jiuyuan Airlines with 78.9% shareholding percentage. Founded in the first half of last year, Jiuyuan Airlines has a registered capital of 600 million yuan, and started operation at the end of lat year.

Up till now, Jiuyuan Airlines has a total of 3 Boeing 737-800 aircrafts for running three flight routes, all three aircrafts were leased from Indonesia Lion Air, with a moderate company size. Nevertheless, considering that the 50 aircrafts order previously signed by Jiuyuan Airlines with Boeing are scheduled to be delivered within five years, in the future JuneYao Airlines is expected to present a dual base, two brand and double businesses (Full-service + Low-cost) model.

 

Contest for the title of top market value in private airlines

The two private airline companies with deep “Rival sentiment” experienced twisted fates on the road of public listing.

After IPO reopened, in April last year JuneYao Airlines submitted prospectus, which happened almost at the same time when Spring Airlines did the same. However, Spring Airlines finally was listed in January this year first despite internal tipoff which led to re-examination, almost 4 full months earlier than the listing of JuneYao Airlines.

Its remarkable performance after listing also gave considerable pressure to the “late comer” JuneYao Airlines. By the end of the trading day on May 26, Spring Airlines’ share price was 140.36 yuan, nearly 8 times that of its issue price, its market value already surpassed Asia’s biggest low-cost airline AirAsia, meanwhile its price is high above the share price of three biggest airlines and Hainan Airlines.

Nevertheless, even if Spring Airlines was much favored by the market, securities companies and industry experts also expressed considerable expectation toward JuneYao Airlines’ share price. Based on estimated value given by securities companies including Industrial Securities, Haitong Securities and Chagnjiang Securities, JuneYao Airlines’ share price in three months is expected to top 30 yuan, almost doubling the existing price. Some industry insiders told the journalist that, JuneYao Airlines’ future share price is expected to follow the footstep of Spring Airlines to surge above 100 yuan.

In fact, judging from performance alone, JuneYao Airlines differs little from Spring Airlines. Despite the fact that in the past three years Spring Airlines’ operating income and net profit both surpassed those of JuneYao Airlines, the gap between the two is narrowing. In 2012, JuneYao Airlines’ net profit is only one third of Spring Airlines, last year its net profit reached half that of Spring Airlines. In the first quarter this year, it recorded 267 million yuan of net profit, such performance has surpassed that of Spring Airlines.

Now the prevailing opinion in the industry is that Spring Airlines and JuneYao Airlines each has its own advantages. In the past three years, JuneYao Airlines’ seat occupancy rate hovered between 84%~86%, that of Spring Airlines was 93%~94%, the latter’s seat occupancy rate obviously is one notch higher. But JuneYao Airlines’ Revenue per ASK is 0.62, which is higher than 0.43 of Spring Airlines, JuneYao Airlines’ positioning at mid to high end obviously has reaped return.

Since the setup of Jiuyuan Airlines, the common features shared by the two are still growing. With their base in the same city of Shanghai, JuneYao Airlines and Spring Airlines both use A320 serial aircrafts for execution of flights, but Spring Airlines Japan and Jiuyuan Airlines are both separately developed markets, and they both adopt Boeing 737-800 aircrafts, which differs from their parent company. Different fleet setup not only spread political risk of aircraft purchase, meanwhile it improves the two private airlines’ bargaining power.

Owing to delay of opening by several months, and obstruction in approval of flight route, Jiuyuan Airlines sustained loss of 60.14 million yuan last year, which created certain unfavorable factor for JuneYao Airlines. Nonetheless, according to the latest operation data of Jiuyuan Airlines obtained by the 21st Century Business Herald, its seat occupancy rate in the first four months this year all exceeded 94.7%, the aircraft’s daily utilization rate reached 11 hours, these indicators are similar to those of Spring Airlines.