Growth Despite Disruption

Transcript

Rafał Milczarski:Rafał Milczarski, CEO, LOT Polish Airlines. I am going to talk about growth despite disruptions. Ladies and gentlemen, LOT Polish Airlines actually celebrates its 90th anniversary this year, and we have been, as a company, we had to face a lot of challenges and a lot of disruptions. We are actually— can I have the slide control because the slides are not moving? Oh, I'm sorry. Okay. Okay, we are, we are as an airline, as I said, 90 years old and we have had to face a lot of challenges. The most recent challenges, of course, we are facing very bravely because, you know, this is our network. We currently operate over, over 110 scheduled routes. When I came to the company in 2016, the number of those routes was, was actually 41. So we have provided amazing growth in this market, and this is, this is where we fly from Warsaw and from Budapest as our 2 2 main long-haul hubs across the Atlantic and into Asia, as well as we have a great, very dense network in Central Europe. The disruptions we have had to face during our growth over the last 3 years, they are, they are on the slides. And when I came to the company, the, the biggest I guess the biggest challenge from our point of view was obtaining the slots to fly over the Trans-Siberian routes in order to enable growth in our long-haul Asian traffic. It was a difficult process, difficult negotiations, but we succeeded. Of course, every single one of those challenges and disruptions, they take a lot of time. To, to sort out. We have had to face ATC constraints every single year of our growth. We started growing in 2016 after the company came out of compensatory measures of the European Union. There have been ATC constraints. Last year, of course, was the most horrible one in that respect, and we have suffered in a major way. But actually, even, even in 2000— even in 2016, we faced a situation where our air traffic control unit price in Poland was so cheap relative to, to those in other European countries that we had a lot of traffic avoiding the costs and flying around Germany. At that time, the comparison was about €33 to €95 per unit. We were ending up with the cost as our airplanes were actually kept on the ground. Of course, all airplanes in the air have absolute priority. We have faced significant airport capacity issues. And here I mean not only airport capacity at Warsaw Airport, which isn't particularly well built for the, for the type of activity that we are actually undertaking. We have decided at LOT that the only way that we can survive the company and actually have a long-term future is decide to grow into a proper network carrier. We used to do it a little bit, but we had 4 long-haul operations in 2015. We now have a much more substantial network, but we had to decide actually we want to build a proper hub, a functioning hub in Warsaw, and we want to have a lot of airplanes coming in so that passengers can change airplanes at the hub. And that required very, very hard work on the Warsaw airport capacity. But at the same time, of course, we are not in a vacuum. At every single airport in the world where we are starting to fly or where we are flying, there are constraints. And this is probably one of the most difficult issues when you're running and developing an airline, especially if you're drastically changing the size of the company and increasing the network. This is something that you really have to think about. Unfortunately, we also had industrial actions last year. Last year we had a strike at LOT that lasted 14 days. Fortunately, it didn't impact us too much. We only had to cancel about 2.5% of our flights, but it was definitely a very negative phenomenon, and I think every single airline in Europe has had to face with this. Which is very, very unfortunate and very unfortunate first and foremost for the passengers. So I am, I am very, very sad and I think there is something, there is something that needs to be done overall in Europe on the, on the ways to address this, the, the social issues. There has to be more discussion, talks, more negotiations and less of the very, very dramatic activities like strikes. And unfortunately, we have strikes every single year in the European aviation industry, either in the airline industry or the ATC. We all remember air traffic controller strikes in France. Most recently, I was flying with a very important person from Poland into Brussels, and we had to postpone our flight by 2 and a half hours because suddenly, out of the blue, Belgian air traffic controllers decided to strike. This is extremely irresponsible, and I think if we really want aviation to grow in a way that will be, well, CO2 neutral, we have to address these issues as well. So this is a little bit of a comparison of our company in 2015 versus plans that we defined in 2016. And they were supposed to be achieved by 2020. Fundamentally, we are going to deliver all the targets of our 2020 plan by the end of 2019. So from 41 connections in our network, 41 routes, we now have 111. We carried in 2015 4.3 million passengers. In 2019, we will carry over 10 million passengers. Our aircraft fleet, as I've mentioned on the previous panel, it has grown dramatically to 45 aircraft in 2015. Now we have over, over 80 aircraft, including 15 widebodies. We fly 787-8s and 787-9s, and we have 2 additional 787s coming next year as well. So the issues that we have to address, I believe very strongly that they can be addressed. The air traffic control issue, of course, it's very political and it will be difficult to sort out because we are still limited by country boundaries and it is an amazing frustration that you can take a car and drive to Paris without stopping at the borders. Yet every time you change the border in aviation, you have to change the air traffic control. I guess this is— there is a correlation between wanting to keep air traffic control as a national treasure and the perception of sovereignty, but I believe very strongly that this shouldn't be a block to efficiency. We have to make it more efficient. And as I said, a scheme where those who underperform have to compensate would be a scheme that potentially could introduce some efficiency into this. Of course, what would be ideal if we developed completely new corridors to fly directly from various points to various points in Europe, but I guess this is going to happen. We are suffering in Europe from very, very significant capacity crunch on the airport capacity. And actually, I'm very happy to say that the Polish government is addressing this issue and thereby helping Europe to address its future capacity constraint on the airport capacity, as it is going to be building the Solidarity a transport hub, which will be a major enhancement of European airport capacity. We will have an airport that is in the center of Poland. It will have the capacity to grow to about 150 million passengers, but the initial size will be 45 million passengers. Of course, it's primarily going to serve Central European needs, but there is nothing to stop us to stop us offering services also to Western Europe. And what is extremely important, especially in terms of, in terms of the flight-shaming phenomenon that is currently taking place, we are focusing very strongly on the intermodality of this hub. So in fact, along with building the airport, which will be the central aviation hub, in the same infrastructure there will also be the central railway station of Poland. And we will actually have about 1,700 kilometers of new rail tracks built in Poland in order to enable true high-speed operation that will enable pretty much the entire population of Poland to reach this airport within 2 hours or 2 hours and a half. by train. This will actually— trains are undoubtedly the most ecological and the least CO2-aggressive means of transportation, and I believe very, very strongly that the combination of rail and aviation is the way forward. And I also believe very, very strongly that flight shaming is wrong, but I will tell you about this in a little while. Some conclusions. I think capacity constraints can be addressed, and we are doing our utmost to address them. New airport capacity has to be built, has to be built, and it will be built. Certainly it will be built in Poland in a very inclusive way. We will consult the the company that is going to build it. It's called CPK. It will consult with many people, with all the industry players. They have set up an airport consultative committee with IATA, which actually is going to play a very important role. We want to make sure that this airport is state-of-the-art, really modern, and that it can perform as the airport of the future and not airport of the past. Now, a little bit, I would like to have a little bit of a reflection with you today on the flight shaming phenomenon. I got inspired by Sebastian, I don't know if he's still here, because he was showing a lot of numbers and I actually decided to make a simple calculation of the fuel burned, i.e., CO2 emissions of comparable means of transport. So if we imagine, let's say, a route between Warsaw and Paris, Warsaw and Paris is about 1,530 kilometers. And, you know, the car— if we assume that a car burns around 9 liters of fuel 9 litres of fuel per 100 kilometres. And if we assume that there are 2 passengers in a car, if we assume that I sent a MAX airplane with 186 passengers to Paris, then we need, of course, a certain number of cars. And those cars, if we send them to Paris, they will burn around 13 tonnes of fuel. Wow. If we assume that four people will be traveling in the car, that will be six point five tons of fuel. When I send the 737 MAX eight into Paris, I'm wondering if you know how many tons of fuel I will burn. Any ideas? Four and a half. So actually. We will burn less fuel than than by going by car. But of course, you can say, well, actually railways is more ecological. So I actually know a little bit about railways because I was the CEO of a of a of the of a significant European rail freight company. And I'm not going to compare the burn the fuel burn of of a rail freight of a rail freight train. Because a locomotive burns about— my locomotives in the past, they burned about 7 liters of diesel per kilometer. So they were burning 700 liters of fuel per 100 kilometers. But, you know, on passenger trains, they will probably burn between, you know, in terms of the energy, equivalent energy, i.e., equivalent CO2 emissions, they will burn probably between 3 and 4. liters per kilometer. That is still more actually than what the airplane will burn on that route. So I just did this here at the table when looking, when looking at Sebastian's presentation because I was really inspired by the numbers. This is a very simple calculation, but scientifically actually I think it can be easily proven. We just need to start questioning this, that we are not so bad. In fact, we are, we are pretty efficient, and the nature of this calculation is majorly influenced by the fact that we do have efficient engines, and we have made a major effort as, as aviation to actually, to actually be more ecological. Why are we getting the blame for doing this? I don't understand. We certainly are making a lot of effort to be more ecological. We're making a lot of efforts to to be less polluting. And I think, you know, if we talk, if we talk about trains, trains are great things. I love trains. But they consume electricity, and it's either electricity that is generated by nuclear power, or it's electricity generated by renewable sources, or it's electricity generated by coal. In a lot of instances, this idea of being ecological because it's electric actually is the same emissions but actually exporting them somewhere else. So I think we have to be very, very careful and extremely scientific in our approach. But we certainly have to bring this debate to a more rational stance because we cannot just be afraid and emotional about this. Aviation, I very strongly believe, is extremely efficient and is becoming more and more efficient as we speak. Aviation influences economic growth in a major way. We have to decide if we want growth in the world, and if we want growth in the world, we definitely need aviation. It is not possible to go by train everywhere on the continent. It is not possible to go by train Well, it is possible to go by train to Asia but it will take 2 and a half weeks and you will not get everywhere in Asia from Europe. And it's not possible to go by train from Europe to America quite clearly. So I think we have a lot of issues in the debate. We have a lot of challenges that I have tried to touch upon but I think with wisdom, clarity, focus, and making calculated decisions, we can actually greatly improve aviation. We can remove the obstacles to development of aviation. We can actually invest in infrastructure in airports. If we invest in airport infrastructure, we will have less holdup time in the air. We will burn less fuel, i.e., burn less CO2. the prices can become, can become cheaper. And it's all achievable if we actually start working together, uh, and if, uh, and if the politicians, certainly politicians in Europe, uh, become closer and, and more listening to what we as an industry have to say. And I really hope that that will happen. And I'm very proud to say that, that as a, as aviation industry in Poland We have a very, very good dialogue with the government, and the result of this dialogue is reflected in this amazing project that will be built in Poland, Central Transportation Hub. I'm sure a lot of you in 10 years' time will have the ability to fly through this hub. My wholehearted invitation. Thank you very much, ladies and gentlemen. Thank you.

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