LOT push to improve brings in stronger nine-month returns
LOT Polish Airline's restructuring efforts in the last year helped the airline turn a $8.3 million profit during the first nine months of 1999.
And unlike previous years, this year's positive nine-month result came from lower costs and greater efficiency as opposed to extraordinary gains. The airline has spent the last year reviewing routes, promoting its business-class service, cutting leasing costs and trying to improve its overall competitiveness, airline industry executives said last week.
LOT last week reported nine-month revenue of zl. 1.9 billion ($452 million) and a net profit of zl. 35 million ($8.3 million). That compares to LOT's full-year 1998 profit of zl. 2 million ($571,428), which primarily came from extraordinary gains from asset sales. In 1997, the airline lost zl. 135 million ($42.1 million).
"I congratulate them for doing so well, when other airlines are struggling to perform in the black," said Pekka Immonen, Finnair's director of sales for Central and Eastern Europe.
LOT carried more than 2 million passengers in the first nine moths, an increase of 12% from the previous year, Immonen noted.
Immonen said that many European airlines have been faced this year with rising costs, much of which stemmed from a more than 40% hike in jet fuel prices. "That's giving us a big headache," he said.
That situation on the market made LOT's results all the more impressive. LOT officials were not available last week to comment on the figures.
LOT has reworked many of its routes in the last year, cutting back on some loss making destinations and improving connections to cities outside of Warsaw. For example, LOT increased flights between Poland and the Ukraine to eight times a week from six, said Lyubov Medvedska, a representative for Air Ukraine in Warsaw. At the same time, LOT has opened up direct connections from the United States to Krakow, she said.
Other airlines also noticed LOT's tweaking of destinations, times and frequency to better compete. "They were changing their strategy and focusing on the most important European routes," said Ole Johansson, country manager for SAS Scandinavian Airlines.
LOT has also focused on filling its business class, the highest-margin business for any airline, Medvedska and others said.
"They have done a very good job," Immonen said about LOT's push for business-class customers. He said LOT has improved the service by upgrading its catering, ensuring on-time arrivals and departures and paying attention to the small details such as distributing complimentary newspapers and magazines.
LOT has also made changes to its fleet, introducing Brazilian-made Embraer jets which can seat up to 50 people and allow several flights a day between Poland and Germany. At the beginning of the year, LOT also ended lease agreements on two 767s to lower costs, Immonen said.
While LOT's ability turn a profit on its core business was seen as a strong step forward, SAS's Johansson pointed out that the actual amount of $8.3 million is still tiny compared to other carriers. SAS' profit for the first nine months, for example, was SEK 575 million ($67.6 million).
In November, Swissair won the tender to become LOT's strategic investor. Swissair will initially acquire 10% of the airline and eventually up its stake to 38% through a capital increase.
