LOT Polish Airlines (Warsaw) reported a profit for the first time since 2008, closing 2013 with a net profit of PLN 26 million ($8.6 million) and an operating result of minus PLN 4 million ($1.3 million). The result is PLN 138 million ($45.6 million) better than assumed in the Restructuring Plan. The main reasons for this result are a consistently implemented transformation process in the company and the Boeing 787 “Dreamliner effect”.

Back in November 2012, LOT announced the 2013 financial results would be better than expected in the Restructuring Plan. Today’s presentation of detailed figures, following an audit, has been a pleasant surprise.The figure achieved was PLN 26 million ($8.6 million) towards minus PLN 196 million ($64.8 million) assumed in the Plan.Thus, the result has been improved by more than PLN 222 million ($73.3 million).

LOT has gotten closer to where the core business will be profitable. The carrier ended with just a minus PLN 4 million ($1.3 million), compared to a planned minus of PLN 142 million ($46.9 million).This meant more than a PLN 138 million ($45.6 million) improvement, of which PLN 119 million ($39.3 million) LOT earned itself. Macroeconomic factors such as favorable fuel prices had very little impact on the achievement.Furthermore, such factors were offset by unfavorable currency exchange rate fluctuations. The company benefit of the market situation was only PLN 19 ($6.3 million) out of the PLN 138 million ($45.6 million) improvement. This result is also unaffected by the agreement with Boeing on the settlement for the period when the Dreamliners were not used on long-haul flights.

This profitability was reached despite the fact that LOT had to reduce its carrying capacity under so called compensatory measures.This is a requirement of the European Commission due to the received public assistance. Therefore, LOT carried 5% fewer passengers than in 2012, but in 2013, carried more than 4.6 million passengers.

Considering the core business, a significant increase of cost effectiveness and raising the revenue contributed to the improvement towards the Restructuring Plan.Better results were also possible due to reduced administration cost, employment restructuring, fuel savings, reduced cost of ticket distribution and renegotiation of contracts with suppliers. LOT also managed the range of destinations more efficiently, expanded connection possibilities for passengers and improved flexibility of the tariffs offered. The carrier launched extra services and extended distribution channels, including mobile solutions.

Comparing the results year by year, the improvement was most significantly impacted by the ‘Dreamliner effect’.Thanks to this state-of-the-art luxury jet, LOT gained as much as PLN 95 million ($31.4 million).The business class (Elite Club) recognized by passengers as the best in transatlantic flights available from this part of Europe has become increasingly popular.

A huge success is also the Premium Club, an intermediate standard between the business and economy class. Thanks to the Dreamliner, the number of the business and premium class passengers in 2013 increased by more than 80 % compared to 2012. Boeing 787 also offers greater business opportunities in terms of cargo carriage.Because LOT operated the Dreamliner long-haul flights (New York, Chicago, Toronto, and Beijing) beginning mid-2013, consequently LOT saved several million PLN on the reduced fuel consumption.

The year 2013 marks just the beginning of changes.Regaining sustained profitability, maximum reduction of the second installment and maintaining financial liquidity are not the only challenges to face in 2014. It is also of key importance to obtain the European Commission acknowledgement for the Restructuring Plan.So far, there have been positive signals from Brussels.The Commission recognizes the consistency and effects of the Restructuring Plan being implemented.Another challenge is to maintain the market position where LOT is facing increased competition and to effectively use the 6th Dreamliner in a situation where LOT cannot offer new destinations. There are various scenarios being considered, apart from operating the jet on flights to the destinations available at the height of the holiday season. LOT is gradually developing the charter business and is in talks with various partners to explore potential leasing .For 2014, LOT plans to develop the strategy of expanding the range of destinations after completion of the formal restructuring process, after October 2015, as well as steps to acquire a strategic investor.

Copyright Photo: TMK Photography/AirlinersGallery.com. The Boeing 787 has helped LOT Polish Airlines back into profitability. Boeing 787-8 SP-LRD (msn 35941) departs from Toronto (Pearson).

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