El Al says perception of fare hikes exaggerated

El Al Israel Airlines Ltd (level:Ellal) struggle to justify the gap between its position, as they see it, as a company operating at maximum production and going to great lengths to enable Israelis to fly, and the public’s perception of it as a company that takes advantage of the unique situation created by the war to raise the prices of airline tickets.

“What do you think about our share of passenger traffic at Ben Gurion Airport?” El Al CEO Dina Ben Tal Janancia asked participants at an investor conference yesterday after the airline published its third-quarter reports. “Most people think it’s 80% to 90%, but the reality is it’s 44%.” It also called on the state to try to bring foreign airlines back to Israel, claiming that this is not a permit for that, because El Al simply cannot meet the demand.

In its third quarter results, El Al broke its own records once again. The company reported a 44% increase in revenue, reaching a record high of more than $1 billion in a single quarter, and a 3.6-fold jump in net profit to $187 million. The record results are due to the summer, the peak season in the aviation sector, but mainly due to the war that led to El Al becoming the dominant carrier to and from Israel.

In response to a question from Globes about the jump in airline ticket prices, Ben Gianancia said: “The criticism is understandable. We raised prices much less than everyone thinks (El Al says there was a 16% rise in average revenue per passenger). But The alternatives, the whole low-cost world, for example, are currently not at Ben Gurion Airport. People who want to fly at odd hours, or get a lower-quality service, cannot book tickets early, even a year in advance.”

Following public criticism of high prices, El Al implemented a policy of capping flight prices a few months ago. “Our choice is between bad and worse,” explains one of the company’s senior executives. “The result of setting the fare cap has been that for a month and a half now, there have been no negative articles about us about high prices, but on the other hand there are no negative articles about us.” Airline tickets are available until the end of the year, even to the four destinations at fixed prices.”

El Al, controlled by Kenny Rosenberg and managed by Ben Tal Ganancia, operates flights to four destinations at fixed fares: Larnaca ($200); Athens ($300); Vienna and Dubai ($350). For other destinations, according to El Al, the maximum fares (economy class return fare) are $640 to Eastern Europe, $660 to Western Europe, $880 to Paris and London, $1,690 to East Asia, and $1,900 to North America. .

The result of higher prices is reflected in El Al’s revenues from passenger and cargo flights to the United States, which jumped by 63%, reaching $1.1 billion in the first nine months of 2024, compared to the corresponding period of 2023, before the war. The company’s revenues from flights to Europe jumped by 36%, reaching $1.2 billion (nearly half of El Al’s revenues), and for Asia and Africa there was an 11% increase. Overall, El Al’s revenues from January to September rose 42% to $2.5 billion, while net profit jumped more than five-fold to $411 million.

The reason for the big jump in flight revenues is two-fold: the same four destinations at fixed prices, but also the fact that El Al flies 43% of Israelis to Europe (compared to 21% before the war). On transatlantic flights, where competition is almost non-existent today, El Al operated 90% of flights (compared to 35% before the war).

Compensation for losses

El Al’s strong results have generated an impressive $800 million in cash flow since the start of 2024, which explains how the company had the funds to make a bid for control of credit card company Isracard, despite it quickly declining. The company now has $1.2 billion in cash, and equity, which was negative until the past two quarters, now stands at $371 million.

Despite El Al’s big profits, the state will not collect taxes from the airline next quarter, as it admitted $58 million in tax expenses in the quarter, but did not pay because it is still “carrying” hundreds of millions of dollars in losses from the Covid crisis. 2020.

El Al indicates in its reports that the results in the fourth quarter will be very good, but not as good as the third quarter, and says: “Despite the increase in demand as we mentioned, and given the company’s limited capacity, the company expects this.” In the fourth quarter of 2024, there will be a decrease in the company’s operations in terms of available seat kilometers (ASK) compared to the current quarter. In the same quarter last year, the company generated $40 million.

Executive salaries to jump

Near the publication of the financial report, Elal called a shareholders’ meeting to approve a salary increase of hundreds of thousands of shekels for two of its top executives – Ben Tal Ganansia and Chairman Amikam Ben Zvi. If the meeting approves the salary increase, the cost of the company’s CEO’s salary will jump by about 930,000 shekels to 6.8 million shekels, and the cost of the chairman’s salary will rise to 5.1 million shekels, an increase of 900,000 shekels from his current salary. <>The increase in Ben Talal’s basic salary will jump by about 25% to 150 thousand shekels per month, linked to the consumer price index, and the Chairman of the Board of Directors’ salary will also jump accordingly, since Ben Zvi’s salary is 90% of the CEO. As last year, the company seeks to award both executives stock compensation in the form of options worth NIS 1.1 million to the CEO and NIS 830,000 to the Chairman.

These two salary increases will be in addition to the Globes’ revealed bonus increases that executives will receive, amounting to more than NIS 500,000 each. As a result, the CEO’s annual remuneration will be NIS 3 million, and the Chairman of the Board of Directors’ remuneration will be more than NIS 2.4 million.

Buy recommendation from Leumi

El Al is currently trading with a market value of NIS 3.45 billion, after the share price rose by 200% over the past year. The main beneficiary is controlling shareholder Kenny Rosenberg who received NIS 1.1 billion from his investment after taking a big gamble during the Covid pandemic.

Two days before the publication of El Al’s financial results, Bank Leumi published an analysis of El Al’s stock. Leumi sees a 37% rise, mainly due to the jump in the company’s cash. The result, they claim, is that at current stock pricing, the value of El Al’s operations has shrunk (in parallel with the increase in cash) and therefore its value should continue to rise.

El Al’s market share is expected to decline, and this is almost a consensus in the market. However, as we mentioned, the recommendation of Leumi analysts is “buy” due to the large amount of cash that the company has accumulated, and the assumption that its results are “returning to normal.” “It will not be worse than it was before the war.

Published by Globes, Israel Business News – en.globes.co.il – on November 21, 2024.

© Copyright Globes Publisher Itonut (1983) Ltd., 2024.