June 13, 2012 5:29 pm

Airlines: Competitors manage to fly rings round national carrier

A Lot Polish Airlines plane

Cabin pressure: Lot has been struggling to improve results

When Poland joined the EU in 2004, it brought the liberty Poles had been waiting for since the fall of communism in 1989: the freedom to live abroad, and get there affordably.

An estimated 1m Poles emigrated to the UK and Ireland. Many have been commuting back to Poland ever since – for everything from good value dental care to better summer weather.

Thousands of others flit back and forth, working a few months abroad, then flying home. Europe’s low-fare airlines – Ryanair, Budapest-headquartered Wizz Air, and others – have been the biggest beneficiaries of this migration.

More

On this story

IN Poland 2012

The competition has proved to be an enormous challenge to Poland’s lossmaking flag carrier, Lot Polish Airlines, which last year carried 4.6m passengers and posted a loss of 145.5m zlotys ($42m).

At a time when other central European carriers such as Hungary’s Malev have gone bankrupt, Lot is fighting for survival, and the competition is growing.

The latest battle centres on the lucrative Warsaw market, Poland’s largest with 9.3m passengers served in 2011, a 7 per cent increase over 2010. Lot has long seen rivals such as Lufthansa siphoning well-heeled passengers from Warsaw to its own hubs.

Now it is likely to see a stronger challenge at the cheaper end of the market.

Ryanair pulled out of using Warsaw’s Chopin airport in 2008 after a dispute over landing fees – Michael O’Leary, the airline's flamboyant chief executive, called it a “shocking airport”.

Instead, the discount carrier put unpronounceable destinations on the map such as Bydgoszcz, Rzeszów and Wroclaw, its first Polish fleet base, tying secondary Polish cities directly to European destinations.

That approach contrasts with Lot’s hub-and-spoke system based on Warsaw as its main airport for foreign flights. Lot now faces a renewed low-cost challenge, thanks in part to the infrastructure upgrades prompted by the Euro 2012 football championship.

The tournament provided the impetus for Warsaw’s long-awaited low-cost airport at Modlin, a former air force base around 40km north-west of the city centre.

Ryanair begins flights from Modlin on July 16, launching eight new routes it hopes will carry about 700,000 passengers a year. Eleven more routes will be added in the autumn.

Wizz Air has also moved to Modlin, even though the old airport boasts a refurbished terminal and a new rail link some 20 minutes from the centre.

“Wizz Air is moving to Warsaw Modlin to get lower landing fees,” says Przemyslaw Przybylski, spokesman for Warsaw Chopin.

“But that is fine, Warsaw Chopin helped establish Modlin exactly to cater for the low-cost airlines which were overcrowding our facilities, and we remain a shareholder in the new airport.”

Lot also faces change. The treasury ministry, which owns 68 per cent of the carrier, is hoping to privatise it this year.

Plans to sell a 50 per cent stake to fast-growing Turkish Airlines fell through this month, largely over Turkish concerns that EU rules would prevent it from taking full control of Lot.

The treasury may end up privatising Lot through the Warsaw Stock Exchange, and there are also hopes that Air China may take an interest.

As privatisation nears, Lot has been struggling to improve its bottom line. The carrier’s net loss has been declining while its passenger numbers have been rising at an annual rate of 9 per cent.

The airline says its load factor (a measure of efficiency) was more than 76 per cent last year, in line with many competitors, and Lot predicts an operating profit of 52.5m zlotys for 2012, which would be its first profit since 2007.

In November, Lot will be the first European airline to receive Boeing’s new B787 Dreamliner, one of the most fuel-efficient airliners in the sky.

It will serve Lot’s routes between Poland and North America.

This suggests that, with Lot facing competition closer to home, it will steadily build its intercontinental network.

“Lot knows Europe is getting extremely competitive, but it could carve out a niche running long-haul flights,” says Stephen Furlong, an airline analyst at Davy, an Irish brokerage.

“The arrival of the Dreamliner definitely makes that a possibility.”

The rivalry close to home looks to be getting even fiercer.

OLT Express, a new Polish airline, began operating domestic routes in April. Aiming to compete with Lot’s internal flights and Poland’s slow intercity rail services, it has cheap prices and frequent flights.

“This is a big country, people are feeling wealthier all the time, and they are still unsatisfied with the roads and railways,” says Jaroslaw Frankowski, OLT’s managing director.

“Lot didn’t believe me when I pitched them the idea two years ago that low-fare domestic flights make total sense in Poland. Now they’re having to cut fares, and they don't have enough fleet to compete with us.”

Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.