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LOT Polish Airlines Mounts a Surprising Comeback

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LOT Polish Airlines Mounts a Surprising Comeback

LOT Polish Airlines Mounts a Surprising Comeback
May 25
11:18 2017

LONDON — Five years ago, LOT Polish Airlines looked like another of those long-established, medium-sized European national carriers that was heading for the history books, like Belgium’s Sabena or Hungary’s Malev.

State-owned LOT had made losses every year since 2008, was coming under increasing pressure from low-cost carriers such as Ryanair and Wizz and in December 2012 had to ask the Polish government for a $270 million financial bail-out to avoid insolvency.

Funding was forthcoming but, under European Union competition rules, it had to submit to ‘compensatory measure’ to ensure that this financial injection did not skew the commercial playing-field with its rivals.

That meant cutting capacity, dropping several profitable routes and making its own financial contribution towards a restructuring package. To get back to financial health, it also had to make a painful 35% cut in ground personnel.

Today, optimism has returned, the airline is growing rapidly and plans further expansion over the coming years – particularly in long-haul.

New CEO Rafał Milczarski says that LOT’s hub at Warsaw Chopin Airport is already seeing a growing percentage of transit traffic and he believes that when a new central Polish airport located between Warsaw and Łodz opens for business in the second half of the next decade, it can grow into not just a European but a global hub.

Milczarski, whose background is in the railroad industry, points to Poland’s position in central Europe as the basis for his belief that it can become a major center for transit traffic, particularly to Asia.

Helsinki and Stockholm airports already advertise their ‘shortcuts’ to Asian destinations, but Milczarski said he believed Poland’s closer proximity to many major European destinations fitted it better to the hub role.

Over the past eight months the airline has opened services to Tokyo and Seoul, to add to its existing Beijing route and is looking at other Asian destinations. It is also expanding its transatlantic services, having just restored its former route to New York Newark.

One of the reasons for the expansion in North America are the large Polish communities in cities such as Chicago and Toronto. LOT used to serve Newark, but pulled out when its board decided to concentrate on New York JFK and open Beijing instead, some years ago.

“We wanted to demonstrate to the Polish, Ukrainian and Jewish diaspora in the vicinity of Newark that we knew it was a mistake to leave Newark. We wanted to show them the attention and focus that they deserve and need.”

LOT is currently using leased Boeing 767-300s from Portuguese ACMI specialist euroAtlantic Airways on the route, but will start serving it with its own 787-8s from August. “It’s a temporary solution, but we wanted to start the Newark route as quickly as possible, because I think there was an urgent need to do that,” said Milczarski.

He believes that LOT will expand over the North Atlantic: “I believe there’s more destinations to come in North America in future. There are also more destinations in the East that are interesting to us.

One unlikely but potentially profitable route is Warsaw-Astana, in the central Asian state of Kazakhstan, which is due to open shortly. Why? Because hundreds of thousands of people of Polish ethnicity were deported from the Ukrainian part of the Soviet Union to Kazakhstan – another far-flung part of the USSR –  in the 1930s, followed by even more from Poland itself after the eastern half of the country was occupied by the Soviet Union in 1939.

“There are 35,000 Poles still living in Kazakhstan and there’s a significant number of Central European businessmen that do business in Kazakhstan,” explains Milczarski.

“We would like to develop good co-operation with [Kazakhstan national carrier] Air Astana. We’re talking about having connections to various destinations via their hub.”

The topic of partnerships crops up frequently in conversation with LOT’s CEO. He “absolutely” believes a connection with another airline would be a good move in the long term, although he says there is no urgent need to find one.

“Part of our strategy is finding the right partner, to develop more of a global network with them. Who that partner will be, I can’t say yet. We have to demonstrate to that partner a little more that our strategy will actually work. We have a very good cost base, good equipment” – growing numbers of Boeing 787-8s and soon-to-arrive 787-9s are transforming its long-haul economics – “and we will have a fantastic airport.

“By ‘partner’, I don’t necessarily mean someone who will finance our growth; I think we can finance it ourselves, or find financial investors. When I say ‘partner’, I mean somebody who can make 2+2=8, not 4.”

In fleet terms, LOT will have 51 aircraft by the end of this year and is aiming to have around 70 in the inventory by 2020. Going into 2018, it will have eight 787-8s for long-haul sectors, 10 737s (three -400s, four -800s and two MAX 8s) for medium-haul, plus 24 Embraer EJets (six E170s, 12 E175s and six E195s) and 10 Bombardier Q400 turboprops for regional duties.

Milcarzki admits that simplifying the fleet would be beneficial, with the likely solution being to consolidate on a single regional type.

LOT Polish Airlines [Podcast – Deep Dive #3]

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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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