Poland's Flagship Airline uses SAS^® Financial Management Solutions

SAS helps LOT Polish Airlines Focus on Flight Profitability in Turbulent Times

LOT Polish Airlines, Poland's national carrier, was founded in 1929 and is among the world's longest-established airlines. Based in Warsaw, the company employs over 4,000 people and offers direct flights to 49 destinations in 31 countries.

"We combine tradition with modern technology to meet our customers' expectations," says Piotr Ikanowicz, Vice President for Finance and a LOT Board member. "Our goal is to create value and maintain our leading position in providing services to, from and through Poland." In 2002, Business Traveller magazine named LOT as 'Best Central and Eastern European Airline' for the fifth year running.

"We constantly strive to achieve profitable growth and an appropriate return on capital," continues Ikanowicz. "However, we operate in one of the fastest-developing and most competitive markets in Europe. And the last two years have seen trading and financial conditions for airline companies worsen. In 2001 we embarked on a strategy we call 'Program of Changes', to help us address the downturn in the market, and a key spotlight was on flight profitability." To focus on this strategy, Lot decided to invest in SAS Financial Management Solutions.

SAS checks in
When LOT decided to implement an Enterprise Resource Planning (ERP) system to replace the majority of functions provided by its operational systems, the company recognized that it also required a new financial management system to plan, analyze and report on financial information. "Our finance officers recommended a system that would enable us to calculate the profitability of specific flights and particular aircraft across many different types of costs and incomes," says Ikanowicz. "This would involve monitoring over 800 costs and incomes for more than 300 profit/cost centers. This meant being able to access and distribute data from multiple systems, prepare reports based on a financial data warehouse, and implement a data store for financial users to address their precise requirements."

The SAS-based system meets all of these criteria. "We chose SAS Financial Management Solutions because we'd used SAS for trade analyses and were happy with the results," says Ikanowicz. "SAS consultants proved that they understood our business issues and they delivered the system on time and on budget."

Take-off
LOT's system accesses, cleans and integrates financial data from eleven operational systems, enabling settlement and verification of multiple databases. "This involves working with around 320,000 aggregated documents on about seven million detailed items drawn from the operational systems," says Ikanowicz. "The process also involves maintenance procedures for the various dictionaries used, including cost centre identification, cost codes, overseas transport agents, and so on. We have tight rules for the integration between our accounting system and the other operational systems."

Analysis results in information that is accurate and reliable – providing detailed insights into profitability. "Combining quantitative and qualitative data, we can see profits and costs according to both the time of booking and the time of realization, and can prepare regular and ad hoc reports for different types of users," says Ikanowicz. The system speeds up reaction times and enables LOT to take appropriate action.

The profitability system has six dimensions. 'Accounting Time' and 'Realization Time' are broken down into year, quarter and month. 'Account' covers management accounts for profitability reports, while 'Profit & Loss Account' delivers similar information for profit and loss reports. 'Flight' covers areas such as range, destination and connections, and 'Aircraft' relates to the vehicle type. The basic report structure moves from headline profitability figures, dealing with the accounting and realization times, account and flight, to more detailed information on various aspects of profitability. Reports can be displayed as tables or graphs that can show trends over time, and that are delivered through standard Web browsers.

Factors taken into account can include everything from salaries to the cost of in-flight meals. "With a deeper understanding of our processes, we can see different areas of profitability clearly," says Ikanowicz. Consequently, LOT can focus on profitable areas while taking action to improve the areas that are not contributing to overall profitability. This has implications for a wide variety of things such as staffing levels, catering arrangements, resource adjustments and service levels – to allow profits to be maximized without compromising on safety, efficiency or customer service.

Flying high
"By introducing a more automated approach with the ability to perform analyses at both high and detailed levels, we have improved knowledge about costs and profits," says Ikanowicz. "This means we have far better control over revenue and cost allocations. The SAS system is flexible and we can change reporting procedures as required. We've also reduced the time and administrative effort that's required to produce financial reports."

Despite continued difficulties in the industry, 2002 saw LOT's situation improve markedly. Revenues increased and the airline achieved a 10 percent reduction in core business costs. This is seen as a direct result of the 'Program of Changes' introduced in 2001, including the new profitability system based on SAS. Passenger numbers have risen, while seat utilization improved at a time when European airlines experienced a drop in seat utilization. LOT believes these improvements result from a closer alignment between the airline's offers and market demand for flights.

"We have ambitious plans to develop the system further," says Ikanowicz. "These involve adding budgeting functionality and the preparation of financial plans for next year, including profit/loss reports, balance sheet and cash flow. We also want to introduce longer-term forecasting and to analyze the profitability of commercial contracts. And we're planning to produce management reports to meet the new standards set by the STAR Alliance." SAS will be on hand to support LOT every step of the way.

About LOT Polish Airlines
Founded in 1929, LOT Polish Airlines is Poland's national airline, offering direct flights to 49 destinations in 31 countries. LOT operates an impressive fleet of more than 50 aircraft, ranging from Boeing 767s and 737s to smaller aircraft used by its EuroLOT subsidiary. A member of the Association of European Airlines, LOT is planning to join the STAR Alliance next year, which includes United Airlines, Air Canada, Lufthansa, Air New Zealand and Singapore Airlines, among others. In the 1990s the Polish government moved to part-privatize the state-owned airline, which resulted in Swissair (now SWISS) becoming a strategic investor: SWISS holds a 25 percent stake, Poland's State Treasury 68 percent, and employees seven percent.

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