In about five years from now, the cargo unit of Polish carrier LOT expects to have taken the top rank among the freight carriers based in an Eastern European country. However, maybe even
earlier because of the stunning profitability, the high load factor on intercontinental routes, the growing fleet of Boeing 787 long-haul aircraft, and their new product portfolio launched in Q3,
These factors in combination with other strategic and organizational levers have led to a sustained upswing of the carrier’s cargo business, claims the unit’s Director, Michal Grochowski.
The following assertion is not meant as criticism but comes to mind as a merely neutral observation: So far, LOT Cargo flew below the radar of most international media, including this online portal. An unjustified negligence, shown by the many reforms initiated by their management and taken forward lately. Particularly since their new Cargo Director Michal Grochowski, a long-time DB Schenker executive, took office on February 3, 2018.
Wind of change
Ever since, an invigoratingly fresh wind is blowing through the freight division’s corridors at their Warsaw headquarters and the carrier’s stations in Beijing, Budapest, Chicago, and New York. Shown by encouraging results presented by Mr Grochowski exclusively to CargoForwarder Global in a bilateral discussion.
“LOT’s fleet grew by 24 percent in 2018, but our sales leaped 27 percent,” he stated. At the same time, he proudly reports stunning 50 percent profitability gains generated by the freight division in 2018, making LOT Cargo “a significant contributor to our company’s annual balance sheet.”
Introducing new products was a key move
When looking behind the scene three decisions mainly led to the jump in profits:
The rebranding of LOT Cargo’s products, ranging from “Smart Cargo” (consolidations), to “Select Cargo,” offering forwarders and sales agents different kinds of allotments. Next comes “Super Cargo,” tailored for transporting individual and urgent shipments with prices three times higher than those demanded for “Select Cargo” (“Super Cargo” is our “Cherry on the Cake” – Grochowski). Finally, “Special Cargo” rounds off the new portfolio, focused on sensitive consignments such as temperature critical goods, animal transports or human remains, to name but a few.
Stiffer GSA policy
Secondly, the introduction of these new products in combination with adjusted prices and a stiffer GSA policy has upped his division’s profits significantly, reports Mr Grochowski. “The targets set particularly for our Asian sales agents are very high,” he mentions a third factor for rising earnings.
Apparently with success, as demonstrated by South Korea’s Aerolink group of GSAs. From a cargo perspective, “the Korea flights operated with a passenger Boeing 787, show an average load factor of more than 20 tons, making this route the most profitable one within our intercontinental network,” states the manager.
Similar results show the Beijing flights. “Last October, we transported on one flight 24.5 tons in the lower decks of our Dreamliner from the Chinese capital to Warsaw – a world record in tonnage for a passenger B787,” Mr Grochowski applauds.
No cool containers needed
Further to this he points out that this Boeing variant, of which LOT currently operates 11, with four more joining the fleet in 2019 (first of them in February), is equipped with temperature-controlled compartments in the front part of the aircraft’s lower deck sections. “Equipping the Dreamliners with these installations had cost us additional 1.5 million dollars each, but it pays off because it makes cool containers superfluous for the safe transport of climate critical items.”
Responsible for monitoring the temperatures in the chambers below their feet are the pilots who can adjust the entered parameters in case of deviations.
However, despite the manager’s 787 praise, he also criticizes operational irregularities caused by engine problems. “We are not happy with Rolls-Royce’s Trend 1000 turbine, powering our Dreamliners because of frequent blade shortfalls, leading to the grounding of aircraft.” He adds to this: “But the problem with Trent 1000 engines is global, which means it relates not only to LOT but many other carriers around the world as well.”
Freighters will come, but later
But despite these technical insufficiencies, LOT decided to grow their Dreamliner fleet in a significant way until 2027, Mr Grochowski confirms without delivering an exact figure. But the Polish carrier also considers operating a number of A350s as well, depending on a Board decision.
Freighters are standing on the Cargo division’s list as well. “In about five years we intend to deploy two freighters, connecting Europe with Far East and the U.S.,” he announces, without focusing on any particular model. By then, LOT Cargo might be corporatized, a step towards greater independence from its parent company, the manager indicates.
Until then, he expects to be Eastern Europe’s largest freight carrier, based for instance on a dual hub strategy, operating out of Warsaw and Budapest. Even today, “except for us no other carrier offers nonstop flights linking Central and Eastern Europe with North America and East or Southeast Asia,” Mr. Grochowski reasons.
Poor cargo infrastructure still prevails in Eastern Europe
In most Eastern European countries, the conditions and infrastructure for cargo flights are still poor. “According to statistics, 90 percent of all shipments has to be X-rayed or otherwise security controlled upon the arrival at an airport,” which is anything but efficient. A network of certified regulated agents or known shippers still doesn’t exist, the manager regrets.
New Warsaw Airport will be a game changer
At least in Warsaw this will change eventually. According to plans, in 2027 the new Central Transportation Hub, located 40 km southwest of the city and equipped with 2 runways that can be upped to four, should aviation continue its growth trajectory, is supposed to go online. It will replace today’s Warsaw Chopin Airport working currently close to its maximum capacity, with home carrier Polskie Linie Lotnicze LOT S.A. becoming its main beneficiary. Once operational, it will influence cargo flows and entire supply chains, resulting presumably in less road feeder traffic originating in Eastern Europe and trucked to Amsterdam, Frankfurt or Luxembourg for being uplifted there.