El Al stock keeps rising even as war winds down

If there is a consensus about it El Al Israel Airlines Ltd (level:Ellal) In the capital market, when the war ends, the market share of the national carrier at Ben Gurion Airport will shrink. Many investors worry that stock prices are already too expensive, yet El Al’s share price has risen 40% over the past month, including a 5% rise yesterday. El Al shares, led by CEO Dina Ben Tal Janansia, are currently trading at a market value of NIS 4.3 billion, after its share price rose by 166% since the beginning of the war.

The jump in stock prices cannot be explained by the positive momentum of airlines around the world due to strong demand for flights. For example, US airline stock prices rose significantly last month but mostly by high numbers (USA rose 6.6%, Delta Air Lines rose 8.6%, while United Airlines stood out with a 11.6% rise). Even in Israel, Rami Levy’s Israir Group (TSE: ISRG) is up just 13% over the past month – easily outperformed by El Al.

The market believes that the delay in the return of foreign airlines to Israel has a positive impact on El Al, especially on profitable US routes, where El Al currently has a 90% market share. On these routes, flight prices are expensive. This is in contrast to the fixed-fare flights operated by El Al to four destinations in Greece, Austria, Germany and the United Arab Emirates. Market sources told the Globes newspaper: “As long as the American airlines, led by Delta and United, do not return, El Al will continue to enjoy effective control of the skies.”

The global market is very strong

The results will be reflected in El Al’s Q4 2024 financial statement, and investors are well aware that Q1 2025 will also be very good for El Al – the question is to what extent? Elal stated in its third-quarter results that it estimates the fourth quarter will be very good — better than the fourth quarter of 2023, but not as good as the third quarter of 2024. In the third quarter, Elal again broke all of its own records, with a profit $187 million on revenues of more than $1 billion. Optimism about the stock can also be explained by the fact that in October and November, El Al tightened its grip on Ben Gurion Airport. After its market share had fallen to around 40% in the previous months, in October El Al was once again responsible for transporting 50% of passengers at Ben Gurion Airport, and in November its market share rose to 57%.

“It may not seem important to us that the Houthis fire a missile every now and then, but it has a huge impact on foreign airlines,” says Itay Lipkowitz, CEO of Horizon Capital Markets. “El Al is now operating at full capacity and at prices never seen before.” Even if foreign airlines start to return in April, it will happen gradually and this means that the results of the first quarter will be very strong as well, and in the second quarter as well, we must remember that the global aviation market is currently very strong, there is a shortage, demand exceeds supply and capacity is full, and all Someone has a job, and this can also be seen in the wonderful reports published by the American airline Delta. If the market had been weak, foreign airlines would have returned to Israel long ago.

Will El Al join the competition for Cal-Israel credit cards?

Meanwhile, El Al is raising cash at a rapid rate. In the third quarter of 2024, it generated cash flow of $320 million (compared to $93 million in the corresponding quarter of 2023), its overall cash position swelled to more than $1 billion, and its net financial debt shrunk to just $376 million.

In October 2024, El Al made an offer to acquire credit card company Isracard, but quickly withdrew its offer “due to the short time frame set by Isracard, and the extensive review process required to make the investment.” However, El Al stated that it “will continue to study business opportunities that are consistent with its strategic plan, to expand the basket of products and services for its customers, including in the credit and financial sectors.” The market wonders whether El Al will in the near future make an offer to acquire another credit card company, such as Cal-Israel Credit Cards, when it is put up for sale (by mid-2027).

“The company got one deal wrong, but it makes a lot of money and can make another deal,” Lepkowitz says. “For example, acquire Cal later, or pay a dividend.” The logic of the acquisition of KAL, which Israel’s Discount Bank would have to sell, is clear. “This will be an acquisition with a lot of synergies,” he says. “El Al already has many customers in Israel through its Fly Card, which gives them access to data and also benefits from deals and advertising.” However, as far as is known, such an investment is not currently on the agenda.

Published by Globes, Israel Business News – en.globes.co.il – on January 13, 2025.

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