LOT fortunes down as airlines suffer

LOT Polish Airlines is not immune to the crisis affecting the airline industry following the terrorist attacks in the United States.
By : Robert Wylot

    Tallying up the losses: LOT stands to lose from the terrorist attacks in the United States.

   LOT Polish Airlines (LOT) (http://www.lot.com.pl) is still calculating losses incurred following the attack on the World Trade Center (WTC) in New York. But the real dent to its financials will come with a general slowdown in air travel expected in the coming year, industry sources said last week.

   As airlines around the world are downgrading their financial forecasts, cutting fleets and laying off staff, industry watchers in Poland and Europe said LOT will also feel the pinch. Analysts said the company would be particularly hurt mid-term due to a global decline of air travel, worldwide economic gloom and increased security-related costs.

   “LOT has suffered already and it will suffer in future,” said Bogusław Liberadzki, Democratic Left Alliance (SLD) MP and former transport minister.

   According to Leszek Chorzewski, LOT’s spokesman, the carrier canceled 34 flights in the four days following the attack and had to keep 5,700 travelers on the ground.

   The figure only comprises 0.2% of LOT’s annual traffic, which may suggest that the week of the WTC disaster had a milder effect on LOT than on U.S. or Western European airlines. But many predict that the hard times for the Polish airline have yet to come.

   Chorzewski said LOT will announce its projected disaster-related losses this week. “We’re now working to calculate the losses due to last week’s cancellations as well as future losses,” he said. “We observe some decrease in air traffic, but we don’t yet know how deep it is exactly.”

   Airlines around the world are suffering the twofold effects of an economic downturn and the WTC disaster, according to Matthew Stainer, analyst with Société Générale in London. “Air traffic to Eastern Europe is to a large extent based on business travel,” Stainer said. “And if you have slow economic activity, you’re not going to see much business travel.”

   Other analysts foresee a gloomy year for LOT and other European airlines.

   “It will be extremely difficult to get back to 2000 levels (of traffic) in 2002, because of a lack of economic recovery in the States and consequently in Europe, and because people are now scared to fly,” Stainer said.

   Britta Simon at Sarasin Bank in Zurich agreed: “If you look at history, it was normally 12 months until traffic returned to previous levels, like it was in the case of the Gulf War in 1991.”

   Both Simon and Stainer expect most European airlines including LOT to post operating losses this year.

   LOT in early September announced a far-reaching restructuring plan to halt rising costs and avert losses in 2001 and 2002. The plan envisages laying off “several hundred staff in 2002,” (out of 4,200), and although an increasing number of carriers across the world have been announcing redundancies, Chorzewski told the Business Journal that LOT is not planning to increase the number of layoffs and that there will be no redundancies in 2001.

   As governments around the world are mulling additional security measures at airports and on board aircraft (sky marshals, tighter check-in screening, etc.), industry watchers agreed that it will have a damaging effect on airlines’ financials.

   “Security measures will increase airlines’ costs,” Liberadzki said.

   According to Simon, new security measures will affect air traffic volume as well. “Passenger ticket prices will rise because of security measures,” she said. “But if prices rise, then there will be less traffic.