Christopher Zimmer:
LOT Polish Airlines (LOT) reached a code-sharing agreement this month with the world's biggest airline group, the Star Alliance, headed by Germany's Lufthansa and U.S.-based United Airlines. The deal opens the door to LOT's full membership in Star and is another step away from former partners - the bankrupt strategic investor Swissair and Sabena of Belgium. As a member of the alliance, the Polish carrier will coordinate its services and marketing operations with Lufthansa, its biggest competitor in the region. Christopher Zimmer, Lufthansa's director for Poland, talked to the WBJ's Robert Wylot about LOT's role in the alliance, the competition for Polish skies and the future of Swissair's 25% stake in LOT. The following is an edited version of their conversation.
Q: Did Lufthansa make a profit last year? A: The results are not published. The estimation is that we'll have a small profit of E20 million but the final figures will be disclosed on April 25. But we hope that we will have a little operational profit.
Q: If it turns out that Lufthansa is one of the few carriers that made a profit last year, the airline should be in a good position to buy Swissair's 25% stake in LOT. A: You're right, but it's not Lufthansa's strategy to get involved financially with other airlines. We cooperate purely commercially, we run code-share flights. We are generally not interested in buying stakes in other airlines and, as it has been shown in the past, no airline's success has a link to financial involvement (in another airline). We've learned a lot in the past and I doubt if Lufthansa would have any interest in buying these shares.
Q: But Swissair said it would sell its stake in LOT by the end of June, so what would you do if an airline that does not belong to the Star Alliance suddenly becomes the owner of LOT? A: First of all, no other airline will buy this stake knowing that LOT will join Star because what can you do with just 25%? Unless you have a majority, this would only harm such an airline. Or this airline would actually indirectly bring money into our alliance. So I doubt that any airline will buy the stake.
Q: Star Alliance partner Scandinavian Airlines SAS has repeatedly expressed interest in this stake. Are they still interested? A: I don't know. I cannot comment on this.
Q: What are the implications of LOT joining the alliance for the Polish market? A: We'll expand our offer of flights between Poland and Germany. We'll have to sit down with LOT and see how we can spread the number of flights throughout the day. There's no point in having competing flights with just one-hour difference.
Q: But it's two dominant airlines that are joining forces on a very popular (Poland-Germany) route. The resulting lack of competition usually means worse service for passengers. A: Not necessarily. We'll have a wider variety of flights. We'll have code-share flights, so the passengers will have a chance to collect miles in our joint frequent-flyer program. They will have joint access to airport lounges.
Q: What are the implications for carriers operating on the Polish market? It seems that Star will dominate it. A: Definitely we'll be stronger now with the national carrier in our alliance but there will be enough room for competitors. With the European open-skies policy coming soon (2004), we'll face even tougher competition than we have now. Carriers such as Air France and British Airways will not give up this market. Of course we will now have a bigger market share in Poland, especially in neighborhood traffic.
Q: How big is Lufthansa's market share in Poland now? A: The Star Alliance excluding LOT has one-fifth of the market.
Q: And how much will it be after LOT joins Star? A: It will be around 50%.
Q: Why did Lufthansa decide to join forces with LOT - one of your main competitors in Central and Eastern Europe? A: We gain a market of 40 million people and 5 million passengers. Simple as that.
Q: You've mentioned the European Union's open-skies policy. Do you think Lufthansa's market share in Poland will grow when Poland's skies are liberalized after it joins the EU? A: A good question. A lot depends on what we and LOT agree on now. Our market share may even shrink in the future if we give LOT many services. And a lot depends on the liberalization itself, because today we are not allowed to offer more flights than we do. That will change with liberalization.
Q: So what kinds of services or routes will you give LOT? A: It's not decided yet. This is a subject of negotiations and the summer schedules are already in place.
Q: Are you planning to launch any new routes between Poland and Germany? A: With the code-share agreement Lufthansa will now gain new routes as we don't fly to Gdańsk, for example, while LOT does.
Q: But is Lufthansa itself planning to start any new routes? A: Lufthansa's routes are not planned at the moment.
Q: Is LOT planning any new routes? A: As far as I know, there are no plans to start new routes between Poland and Germany.
Q: So the first coordinated schedule will be for winter 2002-2003? A: No, we'll work on having the first coordinated flights in the summer. The code-share program in neighborhood traffic will start June 1. Then we'll have to start optimizing neighborhood traffic in terms of scheduling, landing times and hub connectivity.
Q: With LOT in Star, will it make sense for the carrier to run direct flights to North America or is it more profitable to fly to Frankfurt or Munich and then to the United States with Lufthansa? A: Let's put it this way: It makes no sense to fly routes that generate losses. LOT can fly wherever it wants or considers profitable but with those routes that make losses, why not give them one hub so that others can take over? We have to analyze profitability route by route, and then sit down together and see what's useful for the alliance and for LOT.
Q: Does it make business sense now to operate direct flights from Poland to the United States? A: I think there is demand in the market, especially bearing in mind that Chicago is the second biggest Polish city, so the demand justifies it. But I don't know if LOT's routes to North America are profitable or not. However, from our figures we see that there is big potential for traffic to America, especially to the East Coast.
Q: What will be the first major steps you will take to work with LOT? A: Practically and pragmatically, this week we'll start setting up working groups regarding cooperation in such areas as marketing, product schedules, contacts with customers, maybe some promotions or frequent-flyer programs.
Q: Are you going to coordinate special rates for LOT within Star? A: We'll have to think about that but first we have to look into the legalities of the current systems. I cannot offer you any details yet.
Q: But your frequent-flyer programs will be combined? A: Yes.
Q: When? A: It will take time. LOT will not be a full member of Star for a year.
Q: Treasury Minister Wiesław Kaczmarek said that LOT is merely applying for membership in Star and would have to be accepted by the other airlines to become a member. Are there any obstacles that could block membership? A: No. All alliance members have agreed to start the admission process, so now LOT just has to fulfill the admission requirements. I don't see any obstacles or problems.
Q: How will the Polish market look in 2004 - when Poland is expected to join the EU? A: Everyone will be allowed to fly to Poland, so Lufthansa will have to be ready for that. It can happen that no-frills airlines will come and that other carriers will appear, but we've already had this situation in Germany and we've learned to cope with it. We're not afraid.
Q: What has your experience about competition in Germany's free skies taught you? A: It gives you opportunities but it (also) brings competition as we're seeing with Ryanair. No-frills carriers seem successful at the beginning but it's actually a different market segment, as they don't fly to major hubs or airports, or have schedules (attractive) for businesspeople.
Q: Do you think these low-cost airlines will come to Poland soon after the skies are liberated? A: This is expected. Because in the case of every market where they don't have access now, they're waiting for liberalization. So when the skies are liberalized, they will certainly show up.
Q: Lufthansa doesn't have a low-cost airline. Why not? A: Because at the moment we don't need it. We have a ready project on our shelves that could be set up immediately but we see no reason to establish a no-frills airline in Germany. We've seen that global players, which are trying to have no-frills flights in their palette of product offerings, are experiencing problems identifying their products.
Q: The press has reported that Lufthansa's CEO Jürgen Weber said that a potential launch of the airline's own low-cost carrier depends on talks with the Polish government. Is this true? A: No. The question of Lufthansa's own no-frills carrier has no link to the Polish government.
