Following the news that the owners of LOT Polish Airlines, the Polish Aviation Group, has bought German carrier Condor, we take a look at the gameplan of this state-owned holding company, and see if it could ever grow to rival the likes of European supergroups IAG and Lufthansa.
Who is the Polish Aviation Group?
To understand who the Polish Aviation Group, acronym PGL, really is, we need to take a closer look at LOT Polish.
Back in 2011, LOT was intended to be privatized. At the time, the airline was in ‘advanced talks’ with Turkish Airlines, however, a deal failed to emerge. Part of the reason for this was that Turkish Airlines, as a non-EU company, was unable to own the majority of the airline.
Back then, LOT was a major loss maker. In 2011, it lost 145.5 million złote ($37m), slightly less than the year before, but still a big loss. But, having struggled to find a buyer, a change of government and of CEO seemed to rejuvenate the airline, leading it to its first profitable year in 2016.
With growth on the back of this newfound profitability firmly in the mind of the Polish government, 2018 saw the creation of the Polish Aviation Group , or Polska Grupa Lotnicza – PGL.
PGL brought together four separate Polish companies: LOT Polish Airlines, LOT Aircraft Maintenance Services (LOTAMS), LS Airport Services (LSAS) and LS Technics (LST). This, the government said, was to put the Polish aviation sector on a firm footing to compete on the global stage, and included plans to develop a Central Transport Hub – a new airport in Poland connected by high-speed rail and road.
At the time, CEO of LOT Polish Rafal Milczarsk commented to Industry Europe,
“Thanks to the integration of these leading aviation companies into PGL, each passenger will be in the hands of one capital group and not several companies that do not share common goals and a common development strategy.”
While grouping the different arms of the Polish aviation industry in this way has certainly led to improvements in efficiencies, could it also put Poland on the forward foot to compete with the likes of IAG, Lufthansa and Air France-KLM?
Subsidiaries of Europe’s aviation groups
Taking a look at PGL, the group’s current subsidiaries are somewhat sparse. As well as LOT Polish Airlines and the various maintenance and services branches, there is also LOT Charters, who operates for Polish tour companies, as well as Nordica, the Estonian flag carrier which is 49% owned by LOT. Of course, pretty soon there will also be Condor.
Fleet-wise, PGL has 94 aircraft under LOT Polish and 20 under Nordica. Condor will bring a further 50 aircraft to the fleet. LOT Charters doesn’t have a fleet of its own, rather it uses aircraft from the LOT Polish fleet. In its first year of operations (2018), PGL netted PNL 7.6m ($1.97) in profit.
IAG, in comparison, has some huge airlines under its control. These are British Airways, Iberia, Aer Lingus and Vueling. These airlines then have subsidiary brands which include Aer Lingus Regional, BA CityFlyer, Comair, Sun-Air, IAG Cargo, Air Nostrum, Iberia Express and LEVEL. IAG’s fleet runs to more than 570 aircraft in total. IAG’s profits for 2018 were €3.2bn ($3.53bn) before tax.
The Lufthansa Group has a similarly large number of airlines under its wing. As well as the main Lufthansa airline, there is also Lufthansa Regional, Air Dolomiti, Austrian Airlines, SWISS, Edelweiss Air, Brussels Airlines, Eurowings and Lufthansa Cargo. It also has part ownership of AeroLogic and SunExpress. In total, the group is responsible for around 763 aircraft. Lufthansa netted €2.2bn ($2.43)bn) in 2018.
The third large European group we can look at is Air France-KLM. Since its merger in 2004, it now oversees Air France, KLM, Air France Cargo, Air France Hop, Transavia, KLM Cargo, KLM Cityhopper, KLM Asia and Martinair. In total, the group is responsible for over 540 aircraft. Although less well-performing than the other two big groups, Air France-KLM still announced a net profit of €409m ($463m) in 2018.
So, what’s the future for PGL?
Clearly, even with the addition of the 50 strong fleet of Condor, PGL is still a small fish in a pond full of sharks. It’s 164 aircraft make the group a mere fraction of the size of the other players in Europe. Its profits too are dwarfed by the announced profits of the other groups.
However, it’s still early days for PGL, only just having wrapped up its second year of operations. In 2018, LOT was reported to be starting takeover talks for Croatia Airlines. In the same year, Romanian airline TAROM had also expressed an interest in a partnership with LOT. If these airlines were to be taken in under the umbrella of PGL, the footprint of the group would grow by another 37 aircraft and numerous routes and connections.
Right now, PGL is no contender for the big airline groups of Europe. But, in the words of the voiceover at the start of Stingray, “Anything can happen in the next half-hour”… half-hour being five to ten years in this instance.
Eastern Europe is flourishing as an aviation market, and is practically crying out for some coordination to give local airlines a leg up against the big boys. Could PGL be the group to do it? We’ll be following closely to find out!