Israel’s aviation industry is waking up to a new dawn. Israir, the new Israeli competitor in scheduled flights from Tel Aviv to New York, is only the beginning. Competition between airlines has aroused new public expectations of better service and lower prices. This confronts the airlines with a major challenge, and gives them a big headache.
That is not all. Once the fog clears, this battle having taken up quite a lot of attention and energy, El Al Israel Airlines (TASE: ELAL) and Israir will realize that that their business sector is expanding to include many participants casting greedy eyes on this profitable route.
These participants are large and rich companies that enjoy many advantages, such as attractive connection flights all over the world. This will only make competition much stiffer for the Israeli airlines.
As everyone knows, Israel is a somewhat problematic end destination. Its chances of becoming a hub are poorer than ever.
However, Delta Air Lines (NYSE: DAL, DNT) is planning to introduce daily flights to and from Israel on broad-hulled Boeing 777s in March 2006. These flights will take off from Tel Aviv at midnight, and land at Hartsfield-Jackson Atlanta International Airport at six in the morning. The return flight will land in Israel in the afternoon. This means that there will be another major player flying to and from the US.
Furthermore, representatives from Deutsche Lufthansa AG (OTC: DLAKY.PK) are slated to meet with representatives of the Ministry of Transport in February 2006. They plan to open the aviation agreement between Israel and Germany. Lufthansa plans to ask for another daily flight, and landing rights in Munich and Frankfurt at a later stage. Lufthansa is also relevant to the US route, because passengers benefit from quite a good connection. A large proportion of Lufthansa passengers choose the company because it allows them to stay in Germany, and continue later to other destinations all around the world.
Nor can Continental Airlines (NYSE: CAL) be ignored. The airline’s route from New York to Israel is considered one of its most profitable, if not its most profitable. Continental has also announced that if demand is sufficient, it will consider adding another daily flight on this line. Continental believes that it has the ultimate answer for the Israeli passenger, because it has connection flights to 151 destinations in the US, and 133 international destinations, and because its homeport is near Manhattan.
Continental claims to be the preferred airline of Israel’s business leadership, and boasts a customers club with 85,000 members.
Even Arkia Airlines, considered the big loser in the Tel Aviv-New York designated carrier sweepstakes, has announced that it is all a misunderstanding, and that it plans to continue demanding designated carrier status on this line.
New Arkia controlling shareholder Avi Nakash says that he plans to lease a state-of-the-art plane, and will start flying to New York as a designated carrier. Failing that, Arkia will at least operate as a charter company on the route.
Arkia, it should be remembered, is Israel’s second largest airline. Its new owners very much want it to be successful, and it doesn’t look like they’ll give up without a fight.
The big winner at the moment, Israir, has already announced that it will start flying on the Tel Aviv-New York route in the next few weeks, and that it has been preparing for this moment for a long time. Israir said that it had believed that Minister of Tourism Abraham Hirchson would grant it designated carrier status.
Israir general manager Sabina Biran said that, up until now, the airline had conducted four weekly charter flights, which carried mostly US tourists. She estimated that the transition to a scheduled daily flight would add 100,000 seats and 60,000 tourists a year. She added that the company had recruited employees in recent weeks for a variety of jobs.
Biran previously announced that if the company received designated carrier status, it would hire another large airliner.
On Tuesday, El Al said that, with all due respect to Israir, it was ready for the contest, and had been expecting it for a year. El Al has hired two new 777s, and is going to fight for every passenger, especially in business class, which generates the biggest profits.
For example, El Al has set up a call center to issue boarding passes over the phone. It plans to install state-of-the-art seats in business class and for coach passengers, thereby doing away once and for all with the inevitable complaints about the quality of seats and unbearable crowding.
El Al CEO Haim Romano claims that even the spaces between the seats on El Al business class will be wider than on Continental.
Improvements will not just be confined to seats, but will include food. For example, passengers will be able to choose a health food breakfast, instead of the fattening food that up to now been the only thing available. Espresso machines will be installed on the planes. Starting in February, passengers will be able to drink coffee and eat sandwiches prepared by Arcaffe.
There is much more. El Al also plans to broadcast digital entertainment channels, replace TV screens, serve better alcohol, and offer massages, in cooperation with the Carmel Forest Spa Resort. Romano says he has many more plans up his sleeve, such as handling of special market segments, and more.
Despite its global outlook and broad view of the market, El Al won’t give up without a fight. Even if it is trying to treat Israir as a negligible airline that is only beginning to operate on the route, it will do everything to limit the damage to its business.
Romano has said in the past that while Israir was busy with defamation, El Al was busy improving its service, creating new connection flights, and reaching code-sharing agreements with airlines all over the world that give it bigger advantages than ever.
Nevertheless, as soon as Hirchson announced the addition of another designated carrier, El Al declared it would turn to the courts to overturn the decision. El Al claims that the government’s prospectus published for its privatization issue guarantees it exclusivity on the line.
El Al terms Hirchson’s decision, “tragic”, “populism”, and “showing no sympathy, while being mislead by the government’s promises.” Romano asserts that the state will not be able to avoid compensating El Al and its employees.
Israir does not plan to wait quietly. The company is already planning to begin flights on the Tel Aviv-New York route in the next few days. Will it be able to answer all the extras that El Al is preparing on the route? Time will tell.
What about the passengers?
Biran promised only yesterday that competition would produce a price cut of at least 10% on the Tel Aviv-New York route. If Israir keeps this promise, and can guarantee good service, there is no doubt that other carriers will also cut their prices.
The question now is whether we will ultimately suffer from intense competition between the airlines. Experience shows that cutthroat competition sometimes makes companies downgrade their service, or even halt their flights on the route.
The aviation industry is full of bankruptcy stories, receivers, and mergers and acquisitions caused by intense and debilitating competition.
El Al, Israir, Arkia, and their international counterparts are now girding for battle. They all want to prove that they are better, more talented, and more creative. We can only hope now that the real beneficiary will be Israeli passengers, who until now had to restrain their complaints about mediocre service. Passengers will soon learn to compare prices among the various aviation suppliers.
Hirchson promises that this is only a first step. He says that he plans to take meaningful steps to open the skies to competition and bring more and more airlines to Israel, who will bring more and more tourists, and serve as alternative to local carriers.
Antitrust Authority director-general Ronit Kan said last week that she would take the civil aviation sector very seriously. Among other things, she said that code-sharing agreements were equivalent to cartels, especially in a country that is like a small island, whose citizens, unlike those in other countries, had no real alternative to flying when going overseas.
Civil aviation industry sources said this week that predictions were too optimistic. They said that, because of our location, our relations with our neighbors, and our lack of proximate destinations, there was no chance that we would be able to buy tickets for $100, like the Europeans.
Nevertheless, everyone agrees that Hirchson’s decision augurs well, and that a 10% fall in prices should not be dismissed as trivial.
Published by Globes [online] - www.globes.co.il - on January 19, 2006