Flyover Poland

By bne IntelliNews March 28, 2012

Jan Cienski in Warsaw -

Poland's roads are a European byword for awful, and its slow and notoriously late trains have acquired a note of danger following a recent rail disaster that killed 16 - leaving the way open for revived competition to ferry Poles by air.

Point-to-point air services have been traditionally provided by national carrier Lot Polish Airlines, but in April a new airline called OLT Express takes to the air, backed by a mysterious investment company called Amber Gold, which made its money by dabbling in gold and not airlines.

Although Amber Gold is on the blacklist of Poland's financial markets regulator for acting without a banking license, the company has outlets around Poland promising annual returns of 10% no matter what the gold price. "After several years of successful activity, we have gathered enough funds that we decided to invest them and diversify," Jaroslaw Frankowski, CEO of OLT told the Polish press.

Amber first bought OLT, then a failing German regional airline, before buying Jet Air, a small Polish flier. It plans to begin flights between most large Polish cities in April. That is a market already served by Eurolot, Lot's regional subsidiary.

The two airlines are competing in a tough market - there were about 1.9m local air passengers last year in Poland, only 10% of the number of international passengers, and the local market has been stagnant for several years. However, there may be a market for at least one airline, due to Poland's dismal ground transport infrastructure.

Rocky road

Government promises to build thousands of kilometres of new highways before the Euro 2012 football championships this summer have turned much more conservative. A planned north-south highway will not be completed this year, and the link between Warsaw and the German border will be only "driveable" and will have to be shut down immediately after the tournament so that construction can be finished. "I'm very upset by the fact that our very ambitious - to my mind too ambitious - plans to have all of these roads being completed by June will not happen," says Slawomir Nowak, the transport minister.

Railway investment is limping as well. Earlier plans to build high-speed rail links between Poland's major cities have been scrapped due to cost, and the programme to upgrade rail lines to allow modern trains to travel at about 200 kph have been severely delayed. The dilapidated state of the railways was underlined by the recent rail disaster north of Krakow, when two trains smashed headlong into each other after a controller inadvertently sent both onto the same line.

The state of the road and rail networks has meant only a slow reduction in travel times between Poland's leading cities. Normally, a country of 322,000 square km - not large by world standards - should not have much of an internal air market, but OLT and Lot are hoping that frustration among Polish travelers may send customers their way.

The 300-km distance between Warsaw and Gdansk takes five hours by car due to the fact that plans to build an expressway between the two cities have stalled, and travel by an ill-named "express" train takes slightly longer. Travelling Poland from end-to-end, from Gdansk to Krakow, a distance of about 500 km, takes eight-and-a-half hours by train, while an advance ticket on OLT costing PLN99 (€25) will get you there in an hour.

Difficult environment

The trick for OLT will be to find enough money to keep investing in airplanes to keep the operation going for long enough to carve out a permanent presence on the travel landscape. An earlier attempt to build a local airline collapsed in 2004, when Air Polonia had to declare bankruptcy.

With rising fuel prices and a slowing economy, the environment is not easy for existing European airlines, as the recent collapses of Hungary's Malev and Spain's Spanair can attest. Lot itself is battling high losses and looking desperately for a buyer, while Lufthansa is struggling to turn around its subsidiary Austrian Airlines.

There is also a question of how long it will take to complete railway and road upgrades. "Everybody has already come to terms with the fact that we won't complete most of the promised roads by Euro 2012," Adrian Furgalski, a transportation consultant, writes in the Gazeta Wyborcza daily. "That's no great tragedy." However, although the highways will be delayed, they will eventually be completed - which could undercut the nascent national air market.

Lot already has an eye on possible market shifts. The airline is buying eight Bombardier Q400 short-haul turbo-props, with an option for a further 12, airliners that can be used to carry passengers within Poland, but which could also be used to fly around central Europe. "It's not that road and rail transport will be in such a bad state forever," Mariusz Dabrowski, Eurolot's CEO, tells the i>Gazeta Wyborcza. "When the situation on the railways improves, we will have to fly somewhere."

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