Delta777Jet From Germany, joined Jun 2000, 1439 posts, RR: 3 Posted (7 years 1 month 5 days 13 hours ago) and read 11662 times:
Around two weeks ago, LOT cried for help of Lufthansa to rescue them, now it becomes clear what worries them. Beside slowing business traffic LOT listen to Mc Kinsey advisers and hedged the entire fuel for the next two years of operation at an level of 140 USD !!!
Now this is 3 times more than market price and LOT was already in financial trouble before.
Rumors going around that Centralwings will be closed down due to de-facto bancruptcy as the company is indebted hugely.
Will the polish government let LOT go bust or will there be a bailout ?
Mgmacius From Poland, joined Jun 2007, 69 posts, RR: 0
Reply 10, posted (7 years 1 month 5 days ago) and read 10393 times:
Quoting Delta777Jet (Reply 8): Here is the article, only in Polish. I dont understand Polish, but some friends told me what is inside:
I can help!
They say that LOT overpaid for fuel more than 280 mln PLN (around 70 mln EUR), the guy responsible for that is probably going to be dismissed and sued. LOT lost in first 10 months of 2008 more then 459 mln PLN (110 mln EUR?), which is 624 mln worse than 2007.
BTW: I read somewhere, that Centralwings is doing OK now - they have charter agreements and can even make profit. Sadly, can't remember where, so no source now
Delta777Jet From Germany, joined Jun 2000, 1439 posts, RR: 3
Reply 11, posted (7 years 1 month 4 days 23 hours ago) and read 10366 times:
The guy who did this, certainly not decided for himself to enter into such large agreement. Most likely top management was involved in the decisions, so that should be the guys to leave the job. I understand to enter a hedge for a certain period of time, but to do it for a couple of years ?!? Regarding Centralwings the situation is a bit unclear, as far as I'm informed they returned or will return most of the aircraft to their sub-lessor LOT and they going to return them to the real head lessor. Many if not all pilots already lost their jobs. So with which planes Centralwings is going to fly ? Who will secure them the future ? I guess they have huge obligations of more than 100 mio. Euros to pay ?!? It will be interesting to see, how this all will end..... I share the opinion of Asiaflyer, LH will not touch this massacre until they can pick up the remaining at a negative price tag.
Alessandro From , joined Dec 1969, posts, RR:
Reply 15, posted (7 years 1 month 4 days 22 hours ago) and read 10050 times:
Why would any airline want to take over LOT, Ryanair is all over their european market and
B787 delays are really troubling with a hedged fuelprice like that?
No, they got an interesting mix of planes, ATR, Boeing and Embraer that will find new users.
Lufthansa only got the B735 in common with LOT and they´re getting rid of them this year.
Only aircraft I could imagine they wanted to keep is the E170, E175 since they going for
the E190, but that´s not enough.
Konrad From United States of America, joined Mar 2002, 577 posts, RR: 0
Reply 16, posted (7 years 1 month 4 days 18 hours ago) and read 8860 times:
Quoting Delta777Jet (Reply 11): I share the opinion of Asiaflyer, LH will not touch this massacre until they can pick up the remaining at a negative price tag.
Second that, LH is not stupid to do otherwise.
Quoting Alessandro (Reply 15): Why would any airline want to take over LOT, Ryanair is all over their european market and B787 delays are really troubling
Ryanair is all over the PL-UK and PL-Ireland market, not much elsewhere.
Now, if LOT goes down I don't think anyone will pick up the transatlantic market. It is low yield and highly seasonal. Eventually a UA (or AA) ORD-WAW or DL JFK-WAW route might work if LOT goes completely out of business. A lot of transatlantic flying out of Poland is already now being handled by LH via FRA and MUC, especially out of regional airports.
In Europe, the only part of business which is worth picking are major destinations out of Warsaw. I mean LHR, CDG, BRU, AMS, FRA, MUC, MXP, VIE, ARN, SVO and not much else. There is some business traffic to those destinations, the customers are loyal to Star Alliance (Miles&More is the FF program of LOT) and they are used to non-stop flights out of Warsaw. A Warsaw based version of Lufthansa Italia might work, say Lufthansa Polska or mini-LOT (to keep it sort of Polish - but please, do not hire anyone from LOT management). To cover those destinations (plus Star Alliance hubs) 10 aircraft might be enough, EMB-170/175 or 190, maybe 319s in the future.
Traffic from Warsaw to secondary destinations in Europe is already now handled by LH, SK and OS offering several connections per day via their hubs. This is why LOT had to close down VCE, LYS, STR, MAN, OSL in recent years.
Apart from Warsaw, all regional airports of any importance (KRK,GDN,WRO,POZ,KTW) are dominated by low-cost (FR to UK and Ireland) and Star Alliance LH/SK offering good long-haul and intra-Europe connections via FRA/MUC/CPH. There is not much business traffic out of regional airports and most of it is handled via FRA/MUC/CPH, not WAW, because of better connections. The regional airports wouldn't even notice if LOT goes out of business.
Domestic flights in Poland are mainly connections via WAW which can be easily replaced by more fligths or more capacity on existing FRA/MUC/CPH flights. The only two domestic routes which sustain up to 8 daily ATR-72 flights are WAW-GDN and WAW-WRO. Those routes might work as a low-cost venture, mainly due to the long travel time by train and notoriously bad polish roads.
To summarize, I am afraid LOT got themselves out of business by having no good strategy for years, being unable to profit from their Star Alliance membership and bad management in general (see the Centralwings fiasco and fuel hedging disaster). There is not much value left to be picked up.
Another thought: might someone else be interested in picking up bits of LOT? AF/KL? BA? (rather not). Well, if AF/KL makes a move, LH might have to take a more active stance.
LipeGIG From Brazil, joined May 2005, 11510 posts, RR: 57
Reply 17, posted (7 years 1 month 4 days 17 hours ago) and read 8330 times:
Very bad to see such move... my only question is that, when it was clear that the world is going into a major recession, why not to revert the hedge, even with a minor loss ?
Hedging is something very serious, and need to be used with extreme carefull. If you want to hedge one side, is because you have the other hedged (for example hedge the USD x EUR rate because an airline has a lot of revenue in USD and more expenses in EUR). Airlines that decide to "play" in the last minute of the game trying to copy Southwest and others (and this group is day after day getting a new member... ) realize that hedge is good on a positive and stable environment with global growing that could drive oil prices up, but it's terrible in the opposite situation.
May be we see in the future less airlines looking for hedge as they always can impose fuel surcharges while prices move higher. But you can't charge a premium or a surcharge while your competitors are purchasing fuel at 1/3 of your price.
Risks are too big now.
New York + Rio de Janeiro = One of the best combinations !
HT From Germany, joined May 2005, 6526 posts, RR: 21
Reply 18, posted (7 years 1 month 4 days 17 hours ago) and read 8329 times:
If LO cannot get out of that fuel-hedging contract, I have no high hopes for their survival.
Quoting MaverickM11 (Reply 3): People need to learn to not do a thing McKinsey tells you to do. How anyone still hires them is simply beyond me, unless you're looking for guaranteed failure.
Copy that for my employer (non-aviation business).
Quoting Konrad (Reply 16): The regional airports wouldn't even notice if LOT goes out of business.
First LO discontinued flights to WAW from my homebase of HAJ, meaning I am back on a 2-transfer routing to RZE.
Now, with LO's overall future in even greater doubt than before, I better wait before purchasing 3 tickets for September - or change my plans alltogether and go by car (even though it will be a 2-day drive to the extreme southeast corner of Poland = Przemysl).
Carpe diem ! Life is too short to waste your time ! Keep in mind, that today is the first day of the rest of your life !
Qazar From Canada, joined May 2006, 341 posts, RR: 0
Reply 21, posted (7 years 1 month 4 days 13 hours ago) and read 6618 times:
Quoting Konrad (Reply 16): A Warsaw based version of Lufthansa Italia might work, say Lufthansa Polska
I like that option!!! ... And the LH empire expands... I always thought LH would actually purchase LOT outright and were simply waiting for government privatization to pounce on the opportunity. But given the state of LOT, I don't think it would be a good idea to buy them as it woud be to grow the LH brand as they are doing in Italy... Nicely said Konrad!
Alessandro From , joined Dec 1969, posts, RR:
Reply 23, posted (7 years 1 month 4 days 3 hours ago) and read 6052 times:
AF/KLM also got very little incommon with today´s fleet of LOT, B734, perhaps they´re interested in the E170, E175 but thats it.
BA makes more sense, they already got the B734 and B763, waiting for the B787 (LOT is infront of the line) and their subsidary will get the E170. So it´s basically the ATRs that don´t fit in so well with them.
Cricket From India, joined Aug 2005, 2993 posts, RR: 7
Reply 24, posted (7 years 1 month 4 days 3 hours ago) and read 6045 times:
I would doubt how any sensible company dis not take a 'Put' option on the fuel. Unless $140 was the 'Put', but given how volatile oil has been some, many carriers 'Put' options were at the $80-100 level.