LOT Flies into Japanese Market After Business Restructuring

It has been a massive couple of years for LOT as it continues its restructuring to return the Star Alliance member to sustainable profitability. Its future was effectively safeguarded last summer when the European Commission formally approved its restructuring plan and ruled the PLN 804 million (around €200 million) of state aid granted to the carrier lawful in terms of the provisions of EU legislation.

LOT Polish Airlines is to launch the only non-stop long-haul link between Central-Eastern Europe and Japan from the start of next year after a successful restructuring of the business. The three times weekly link between its Warsaw Chopin Airport hub and Narita International Airport, in Tokyo, will commence from January 13, 2016 and will be operated by one of the airline’s fleet of Boeing 787-8 Dreamliners.  Flights from the Polish capital to both Seoul, South Korea and Bangkok, Thailand will also start in October 2016, the latter on a seasonal basis only.

LOT will be the first new European entrant to Narita in nearly eight years with the airport having recently seen a reduction in European links as carriers have taken advantage of new international long-haul access at Haneda to introduce services to Tokyo’s other airport.

The new LOT service will provide greater convenience for both Japanese and European passengers and the schedule affords both outbound and inbound passengers’ short connections to dozens other destinations in Europe such as Budapest, Copenhagen, Geneva, London, Paris, Prague and Riga.

"Thanks to this new connection to Japan LOT’s hub will play even more important role,” said Sebastian Mikosz, chief executive officer, LOT Polish Airlines. “Already now, our connections ensure the most effective and much shorter transfer times than larger transfer hubs in the Western Europe. This means a measurable benefit for both business and leisure passengers who, choosing LOT, will now fly from Poland or other countries in Europe to Japan in the most comfortable and time efficient way."

“Tokyo is today one of the major Asian business centres and a major tourist destination. Business relations between both countries are growing stronger. An in-depth analysis has shown that the choice of the first long-distance destination was quite obvious,” he added.

LOT is introducing several services especially for customers from Asia: the menu on the new flight will include Japanese cuisine and the in-flight entertainment system will feature movies of Japanese production. The whole in-flight entertainment system will be available in the Japanese language.

Our analysis of Sabre Airport Data Intelligence demand statistics shows that about 61,000 people travelled between Japan and Poland in 2014, an increase of 37.6 per cent compared to the previous year. Tourism statistics suggest that as many as 41,000 passengers arrive from Japan into Poland annually and 245,000 to the wider Central and Eastern European market every year. At least a two per cent year-on-year increase is forecast for the years ahead.

LOT anticipates a strong demand from both business and leisure passengers and will be pricing the service to appeal to both markets. About 300 Japanese companies operate in Poland, including over 80 Japanese companies with production lines. Trade value is also significant and last year, goods worth 770 million Euros were exported from Poland to Japan and goods worth over 1.2 billion Euros were imported from Japan to Poland.

This is the first of a number of new routes that are expected to be added to the LOT network over the coming years after the formal completion of LOT restructuring process at the end of this year. “Asia is the natural direction for long-haul connections,” says the carrier having debuted in this region in 2012 with its Beijing, China operation.  However, there will also be growth into North America with suggestions that flights will also be introduced to two further US points, while boosting frequencies on existing routes to Chicago and New York in the forthcoming winter schedule.

"Opening new long-haul destinations is a condition for our development, which is why we launch them as quickly as possible," said Mikosz, noting that its current flights operated by the Boeing 787 Dreamliner are the "most profitable part "of the business.

"Four current connections New York, Chicago, Toronto and Beijing) will be supplemented with three more and we do not exclude the next two to be launched in autumn. This means that after opening five new destinations next year, LOT will more than double its network of long-haul connections compared to the present one," he added.

It has been a massive couple of years for LOT as it continues its restructuring to return the Star Alliance member to sustainable profitability. Its future was effectively safeguarded last summer when the European Commission formally approved its restructuring plan and ruled the PLN 804 million (around €200 million) of state aid granted to the carrier lawful in terms of the provisions of EU legislation. The Commission found, in particular, that LOT's restructuring plan will allow the company to become viable in the long-term without unduly distorting competition in the Single Market.

This ruling had placed a freeze on route growth until the restructuring plan is completed but in the intermediate period the carrier has worked on ambitions to further develop its profitable flying from 2016 and after reducing its cost base to be more competitive against the LCCs that operate the majority of seats in the Polish market, it is now on a more stable footing.

A key part of its development will be the increase in long-haul flying and speaking to Routesonline at last year’s World Routes in Chicago, CEO Sebastian Mikosz said up to two additional long-haul routes will be added per year over the next five years. These will initially enhance utilisation of its existing Dreamliner fleet but could see further aircraft arriving in the future.  Alongside Tokyo, Bangkok and Seoul, other destinations under consideration are thought to include Shanghai and Singapore.

Complementing its long-haul plans, LOT has announce several developments in its short-haul market for implementation from early 2016 to feed its intercontinental network. It has already emerged that the airline’s routes to Belgrade, Chisinau, Yerevan and Zagreb that will close from July 1, 2015 will be resumed from the first week of January 2016, while new links to Venice, Cluj-Napoca (from January) and Ljubljana (from March) will be introduced.  

The carrier will also offer links to Barcelona (from January) and to Athens, Nice, Zurich and Beirut (from March), while international flights to Dusseldorf and its domestic Gdansk - Krakow route will be restored.  All these flights will be accommodated through the better utilisation of the airline's existing fleet and will not require any aircraft additions, said the carrier.

"We wish our hub to develop along with us," said Mikosz. "Opening more than dozen European connections guarantees even more convenient transfers for new groups of passengers from Poland and the whole region."

This first phase of development is part of a significant growth programme that will see LOT carry more than 10 million passengers a year by 2020, more than twice as many as today.  This will be achieved by growing its network to more than 100,000 departures per year (currently at just over 68,000) and to serve between 75 and 80 destinations (up from 49 currently). 

LOT hopes to regain its lost market share in Poland to approximately a 30 per cent figure and grow its activities in New Europe to around a ten per cent share, in the process increasing revenues to about PLN 9 billion (currently less than PLN 3.5 billion).

"We need to focus on building the effect of scale. Insufficient scale of operations is currently LOT’s biggest problem," said Mikosz. "There is absolutely no reason why in five years’ time we should not become an airline of a size comparable to Austrian Airlines, Finnair, TAP Portugal or Air Lingus.

"We operate in a fast growing market and, without development, our market share will be rapidly declining. Without expanding the network we will be very susceptible to pressure from the competition,” he added.