Monday, 30 July 2012

Too good to last

There was something fishy about OLT Express, the Polish low-cost airline that ceased flying on Friday. To my mind a low-cost airline that could a) fly out of Okęcie, b) serve complementary snacks c) allocate seating at check-in rather than by elbow-sharpness and d) do all the above for 99 złotys would not stay in business very long. Flying from Gdańsk to Warsaw with OLT (the initials, remarkably, stand for Ostfriesischelufttaxi) earlier this month, I calculated that an Airbus A320 carrying 150 passengers each paying (say) an average of 150 złotys including airport charges and taxes, would net the airline 22,500 złotys. From this must come the cost of jet fuel (currently $3 a gallon - an A320 burns two of these a kilometre - that's already one-third of the revenue); wages of cockpit crew (pilot and co-pilot) and cabin crew of four; ground handling; aircraft leasing costs and maintenance; airport costs and marketing. And snacks. Incidentally, a nearly-new Airbus A320 costs around $50m. Can you see paying for that lot out of 22,500 złotys? I can't.

Three flights each morning between Warsaw and Gdańsk and three back again; in the evening too; flights from Warsaw to Szczecin, Wrocław and Rzeszów; direct flights from Kraków and from Katowice to Gdańsk, Łódź and Bydgoszcz also on the map; plans for flights to European destinations including several in the UK (a much-desired Warsaw-Edinburgh connection was advertised). Wow! These guys had plans.

Above: we shall not see its like again over Jeziorki - fifty million bucks' worth of A320 in OLT Express livery. An unnamed Polish airport official told Gazeta Wyborcza that his suspicions were raised when he was negotiating landing fees with OLT Express that unlike all other airlines he's done business with, these guys did not try to haggle the price down at all, but accepted the airport's first offer.

To me, this was a built-to-flip business model - get the finance to launch, initiate the service, fill seats well in advance - then quickly sell the business as a going concern, there'd be debt, yes, but long-term prospects of an airline that could establish a secure niche for itself in face of laggardly competition from state-owned LOT. Get the customers, raise prices, cut costs - and bingo, a new competitor for WizzAir, RyanAir or EasyJet.

The strangest thing about OLT Express was the company that owned it - Amber Gold, a curious institution (without a Wikipedia page - usually a bad sign) offering curiously high interest rates on 'investing in gold'. Amber Gold's billboards were almost as common a feature on the streets of Polish cities as OLT Express's. You can read more on the Politics, Economy, Society blog; I concur with Student SGH's analysis that the current spate of big-name bankruptcies presage a sea-change in Poland's economic fortunes.

And odd sentiment, but late-June, early-July 2012 might just have been a turning point; after a dazzling summer when everything was starting to come right, things might start to unravel. I sincerely hope I'm wrong.

As it is, OLT Express may well yet attract buyers willing to pick up the assets at fire-sale prices. If not, it will be the third major failure of a Polish attempt to launch a low-cost airline after Air Polonia and CentralWings). In the meanwhile, LOT has unsurprisingly lifted the prices of its own internal flights. It was an all-too brief dream - quick and cheap travel around Poland.

UPDATE - Tuesday 31 July - at lunch we saw OLT Express billboards on a building on ul. Krucza. By the time I left the office, they'd gone. How long will the Amber Gold billboard remain on Al. Jerozolimskie?

This time last year:
Poland's Baltic coast as a holiday destination

This time three years ago:
The Warsaw they fought and died for?

This time five years ago:
Floods, rainbows and hope


Anonymous said...

Michael - good post.

Amber Gold in my opinion, is the top of a house of cards. This whole thing will come crashing down by the end of August or so. I believe what will happen is a 'run' on deposits, the 'owners' of AG making a few statements or their spokesperson doing so, promises made, promises not kept. Becoming incommunicado, being shut down either by the regulator or a bankruptcy filing. Owners disappearing (physically), accounts found to basically be empty. Findings that AB client money was funneled to OLT and AG owners accounts. Interpol manhunt for the owners etc etc. I think they will 'get out of Dodge' if they haven't already.

Madoff Polish Style


Anonymous said...

The whole AG "empire" has a very fishy smell about it. Laundry service trying to make bad money good?

Don't agree that this indicates anything about Polish economy in general but do wish the zloty would get its sh1t together! Then again a weak zlot might well encourage more investment.

Lot of people (significant companies) selling their property but not sure what to make of that.

Anonymous said...

The Poles never seem to learn when it comes to pyramid schemes and dodgy airlines. Every 3-4 years something new comes on the scene and very quickly afterwards it disappears with the investors or passengers cash. A number of travel agents have also gone bust recently. You would think that a Polish esther Rantzen would appear on the scene and start campaigning for consumer protection laws. Maybe PiS could champion this rather than to talk about conspiracies the whole time.