Saving LOT
LOT refers to the plan as its '500 Miles' program, each mile representing a million złoty that the company wants to save by 2006. "We are doing everything to reach this goal. It's absolutely necessary," says Leszek Chorzewski, PLL LOT's spokesperson.
Since LOT's costs per seat add up to 20 percent more than the market average, more efficient airlines are finding it easier to push the unfit flyer out. In 2002, LOT recorded profits of zł.112 million. In 2003, the year-end result was a net loss of zł.109 million. That's a zł.221 million drop.
The program lays out several methods for burning the fat, including reworked leasing deals, a reduction of the commission given to travel agents, slashing costs in LOT offices abroad, employee benefit cuts, and layoffs.
This year, the carrier hopes to save zł.134 million, and the stakes couldn't be higher. According to company officials, the existence of the firm itself is on the line. If the carrier doesn't meet its goal, "we have no chance of competing with the rest of the industry," admits Chorzewski.
Travel boom gone bust
Higher costs have clipped many carriers' wings. As Mark Pelling, editor of Airline International Magazine, says: "All flag carriers are undergoing a period of major restructuring. Falling yields (the price per seat) and high oil prices have hit the major airlines extremely hard recently." Add a flood of increased competition to the mix, and you get a recipe that could ground LOT for good.
Industry figures show airline traffic in Poland has increased by a dramatic 23 percent this year, but LOT lost out on the travel boom. It's understood that LOT's passenger numbers have risen just over 10 percent this year. New low-budget airlines have snapped up customers from LOT's shorter international flights, and British Airways has gobbled up a significant chunk of the Warsaw-London traffic-a very profitable route.
The company hopes to begin slimming down this year by saving zł.13.4 million on reduced leasing costs for its transatlantic aircraft, and predicts savings of zł.75.6 million more from renegotiated leasing agreements over the next two years. When LOT adds new craft to its aging transatlantic fleet, cost will be the determining factor in the decision whether to buy Airbus's A380 or Boeing's 7E7 Dreamliner.
E-tickets
Travel agencies will be feeling the pinch as well. Now they'll have to settle for a one percent commission on the tickets they sell, down from five percent previously. This reduction will inevitably lead to fewer agency sales. To make up for that loss, LOT wants to increase sales of online vouchers, which are much cheaper for the company to issue. Already, the company has increased incentives for its Polish customers to buy e-tickets: Paper tickets sold in Poland will carry an issuing fee from now on.
Next, the plan calls for shedding some costs related to maintaining LOT offices abroad. From staff reductions and other efficiency measures, the company should drop zł.2.21 million in excess expenditures this year. By the end of 2006, the company plans nearly zł.12 million in savings from its branches in foreign countries.
Layoff plans
When it comes to staff reductions, the airline has begun a completely separate plan, called the 'AVA' program, to support '500 Miles.' As Chorzewski says: "Internal costs could be much lower, and the 'AVA' program will help us to determine which positions are really necessary." Speculation has it that those positions that aren't "really necessary" will be found in middle management.
Currently, it isn't known how many employees will lose their jobs as a result of the plan, but already this year, the workforce has shrunk by 160 people. While the layoffs will probably be the most difficult part of the cost-cutting process, the firm wants its staff to know that it's trying to cut costs everywhere it can. According to Chorzewski, employee costs "are just the tip of the iceberg."
LOT can't rely on cost-saving measures alone in order to stay in the air. Along with increased revenue from online sales, LOT plans to produce new profits by snatching a piece of the fastest growing sector of the air-travel market: low-cost airlines. It has created its own budget carrier, Nowy Przewoźnik, which should be up and running by mid-winter. While traditional carriers are still LOT's main competition, "we have to take a piece of cake from this new plate," says Chorzewski.
If they don't, the result could leave a bad taste in everybody's mouths.
Since LOT's costs per seat add up to 20 percent more than the market average, more efficient airlines are finding it easier to push the unfit flyer out. In 2002, LOT recorded profits of zł.112 million. In 2003, the year-end result was a net loss of zł.109 million. That's a zł.221 million drop.
The program lays out several methods for burning the fat, including reworked leasing deals, a reduction of the commission given to travel agents, slashing costs in LOT offices abroad, employee benefit cuts, and layoffs.
This year, the carrier hopes to save zł.134 million, and the stakes couldn't be higher. According to company officials, the existence of the firm itself is on the line. If the carrier doesn't meet its goal, "we have no chance of competing with the rest of the industry," admits Chorzewski.
Travel boom gone bust
Higher costs have clipped many carriers' wings. As Mark Pelling, editor of Airline International Magazine, says: "All flag carriers are undergoing a period of major restructuring. Falling yields (the price per seat) and high oil prices have hit the major airlines extremely hard recently." Add a flood of increased competition to the mix, and you get a recipe that could ground LOT for good.
Industry figures show airline traffic in Poland has increased by a dramatic 23 percent this year, but LOT lost out on the travel boom. It's understood that LOT's passenger numbers have risen just over 10 percent this year. New low-budget airlines have snapped up customers from LOT's shorter international flights, and British Airways has gobbled up a significant chunk of the Warsaw-London traffic-a very profitable route.
The company hopes to begin slimming down this year by saving zł.13.4 million on reduced leasing costs for its transatlantic aircraft, and predicts savings of zł.75.6 million more from renegotiated leasing agreements over the next two years. When LOT adds new craft to its aging transatlantic fleet, cost will be the determining factor in the decision whether to buy Airbus's A380 or Boeing's 7E7 Dreamliner.
E-tickets
Travel agencies will be feeling the pinch as well. Now they'll have to settle for a one percent commission on the tickets they sell, down from five percent previously. This reduction will inevitably lead to fewer agency sales. To make up for that loss, LOT wants to increase sales of online vouchers, which are much cheaper for the company to issue. Already, the company has increased incentives for its Polish customers to buy e-tickets: Paper tickets sold in Poland will carry an issuing fee from now on.
Next, the plan calls for shedding some costs related to maintaining LOT offices abroad. From staff reductions and other efficiency measures, the company should drop zł.2.21 million in excess expenditures this year. By the end of 2006, the company plans nearly zł.12 million in savings from its branches in foreign countries.
Layoff plans
When it comes to staff reductions, the airline has begun a completely separate plan, called the 'AVA' program, to support '500 Miles.' As Chorzewski says: "Internal costs could be much lower, and the 'AVA' program will help us to determine which positions are really necessary." Speculation has it that those positions that aren't "really necessary" will be found in middle management.
Currently, it isn't known how many employees will lose their jobs as a result of the plan, but already this year, the workforce has shrunk by 160 people. While the layoffs will probably be the most difficult part of the cost-cutting process, the firm wants its staff to know that it's trying to cut costs everywhere it can. According to Chorzewski, employee costs "are just the tip of the iceberg."
LOT can't rely on cost-saving measures alone in order to stay in the air. Along with increased revenue from online sales, LOT plans to produce new profits by snatching a piece of the fastest growing sector of the air-travel market: low-cost airlines. It has created its own budget carrier, Nowy Przewoźnik, which should be up and running by mid-winter. While traditional carriers are still LOT's main competition, "we have to take a piece of cake from this new plate," says Chorzewski.
If they don't, the result could leave a bad taste in everybody's mouths.
