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LOT Decides to Go for Growth

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LOT Decides to Go for Growth

LOT Decides to Go for Growth
July 07
11:00 2015

LONDON — In a major initiative late last month, LOT Polish Airlines CEO Sebastian Mikosz announced the Warsaw-based carrier’s intention to double its fleet by 2020, increase its operations by 60%, double passenger numbers to 10 million annually and become what he described as the largest network carrier in New Europe.

In Mikosz’s terms, “New Europe” is an area that extends beyond the traditional boundaries of Eastern Europe, extending from Finland in the north to Turkey in the south. Those two particular nations are the homes of major carriers, Finnair and Turkish – particularly Turkish, which has quietly become a behemoth over the past 15 years. However, LOT believes there remains a market of around 175 million people that it can tap, particularly as that region’s economic growth rate is four times higher than that of the troubled Eurozone.

Mikosz believes that part of its drive for regional leadership is making far greater use of its hub at Warsaw Chopin Airport. “We have already increased our transfer capabilities by 40%. Together with Chopin Airport we have a potential to consolidate the fragmented markets of New Europe and to provide it with a leading transfer hub for intercontinental connections.”
The airport and LOT are working to cut minimum connection times to as little as 35-45 minutes, some of the shortest in Europe. And as the airport is currently operating at less than half of its annual capacity of 20 million passengers, this gives plenty of room for expansion.

Like many legacy carriers, LOT has realized there is more money to be made in long-haul services than short-haul, and intends to make the former its growth engine. With this in mind, it has recently announced plans to open new routes next year to Tokyo Narita, Seoul and Bangkok and hopes to announce two more long-haul destinations later this year.

The Tokyo route is particularly significant; LOT makes the point that it the first direct service to the Japanese capital not just from Poland but Eastern Europe, an indication that the region is underserved in terms of long-haul flights.

A major factor behind the new emphasis on long-haul flights is the arrival of its fleet of six Boeing 787s, which have provided much more economical services than the 767s they replaced and are, according to Mikosz, the most profitable part of the business. This has helped transform the company’s finances. Last year, it made its first profit for seven years, 99 million zlotys ($26 million). Modest by US standards, but a definite improvement on previous years.

However, LOT also intends to be more active in fighting its corner in the crowded European market. Rather than merely defending its local position of an ethnic carrier it wants to start competing actively for market share in Europe. With this in mind, it has announced that it is starting new services to cities such as Venice, Cluj-Napoca (Romania) and Ljubljana (Slovenia).

It also intends to restore services to several destinations from which it had to pull out as part of a major retrenchment some years ago. In return for state aid, the European Commission insisted that LOT should drop many destinations, so that the infusion of cash did not skew the level playing field against its competitors.

So, the stylised goose on LOT’s tailfins will soon once again be seen at Athens, Barcelona, Nice, Zurich and Beirut. And from January 2016 flights to Belgrade, Düsseldorf, Yerevan (Armenia), Chisinau (Moldova), Zagreb (Croatia) and Gdansk – Cracow will also be restored.

“We have all the assets to become a regional leader,” argues Mikosz. “We already have a strong position in relation to other network carriers in New Europe and access to the largest regional market, which will grow intensively. Our Warsaw hub is perfectly located, efficient and is the largest one in this part of Europe.”

However, LOT will have a fight on its hands. A large slice of the intra-European market has been captured by LCCs. And Eastern Europe is the heartland of Wizz Air. Less well-known outside Europe than Ryanair and EasyJet, Hungary-based Wizz Air has a fleet of 61 A320s and competes heavily on price.

LOT’s biggest strategic requirement is simply to grow its business: “We need to focus on building the effect of scale,” says Mikosz. “Insufficient scale of operations is currently LOT’s biggest problem. There is absolutely no reason why in five years’ time we should not become an airline of a size comparable to Austrian Airlines, Finnair, TAP or Air Lingus.

“We operate in a fast growing market and, without development, our market share will be rapidly declining. Without expanding the network we will be very susceptible to pressure from the competition.”

This will require a fleet of “at least 70-80” aircraft by 2020, compared to today’s tally of 44.
That will require more money. Which, in turn, means finding a new investor. But LOT reckons that its new-found financial stability gives it the best chance for years to do so.

 

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About Author

Alan Dron

Alan Dron

Old-school scribe who now is fortunate enough to earn a fair percentage of his income by writing about aviation. Still laments the passing of Concorde and has been known to take a day trip to the Middle East to interview an airline executive.

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