Fifteen foreign airlines have suspended flights to Israel over the past month, leaving passengers almost entirely dependent on Israeli carriers. El Al Israel Airlines Ltd. (level:Ilal), Israel (TASE: ISRG), and every dayBut Israelis were surprised to discover that the prices charged by Israeli airlines had increased compared to the corresponding periods last year, which sparked widespread public criticism.
As a result, the heads of Israeli airlines were summoned on Wednesday to a meeting with Economy and Industry Minister Nir Barkat. The Arkia delegation was the first to meet with the minister, followed by El Al CEO Dina Ben-Tal Gananshya, who reached agreements on lower ticket prices to four destinations.
Globes spoke with Israir CEO Uri Serkis shortly before the scheduled meeting with Barkat. “I was surprised by the invitation,” he said. “Our prices are fair and in line with the prices that are usually charged during the summer season.”
“The company has limited the maximum prices to be in line with 2022-23 prices,” Serkis insists. “Over the past two weeks, there has been a price crackdown and we have not been attacked because our price levels are fair. During this period, three things have happened: supply has decreased, childcare arrangements are still not available, and Tisha B’Av on August 13. So people who were cautious about not traveling abroad are now traveling and there is a peak in demand that even in a normal year would have pushed prices up.”
But you have limited pricing for maximum prices, so you can also intervene in price increases caused by demand.
“If the Ministry of Economy was interested in this, it could take steps that would reduce operating costs and allow us to lower ticket prices – such as helping us in cases where we enter into a wet lease (where the aircraft and foreign crew are leased by the company). We pay very high prices for these operations.”
“Tourism needs peace and stability”
Since the war broke out, El Al has seen its share price and revenues soar. But Israir is suffering. “We have built ourselves up for years as a tourism and aviation company, and in the current situation there is much less tourism and more flying,” explains Sirkis. “We are paying the price for small tourism companies like Diesenhaus, for example, which usually has an annual income of $80 million. If you look at the results, you will see a decline in revenue, which comes from the combined activity (as an airline and a tourism company), and Israir is making up for this. We don’t know yet what will happen in the fourth quarter, but I think we will be able to close a large part of this gap.”
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How has the ongoing war affected you?
“War has reciprocal effects. From our point of view, we want peace – tourism requires peace and stability. It is true that travelers currently prefer to fly with Israeli companies, and this helps us. We have adopted a strategy of stability – we have not changed our flight schedule since the wave of flight cancellations and have not diverted planes to Athens and Larnaca (like El Al). We are sticking to our planned flight schedule. There has been a significant increase in the number of passengers. In the second quarter we carried more than 300,000 passengers, and in the third quarter we expect 500,000 passengers, which means that profitability has also increased when the workforce remains the same.”
Do you think Israelis will learn from what is happening and that they should only travel with Israeli companies?
“We see this happening already, and we are very careful about the prices. They are very similar to summer 2022 and 2023 and we will not back down on this. We want to show customers who have preferred to fly with competitors like Wizz Air that they should fly with us.”
“Every Israeli has the right to fly twice a year.”
Why do foreign airlines continue to cancel flights to Israel, even though there is no real threat of an attack yet?
“The European aviation industry is currently experiencing a very significant shortage of aviation equipment,” explains Serkis. “This has been the result of a chain reaction that started with Covid on production lines, both aircraft and spare parts, and continued with a series of problems at Airbus and Boeing. All of these events have affected production and export capacity, resulting in a global shortage of aviation equipment.”
“Whoever is in charge of the business in Europe stands up and looks at the situation and says, ‘On the one hand, I lack planes, and on the other hand, there is huge demand in Europe, and then there is instability in Israel,’ so we have to decide whether we should reduce the frequency of flights or cancel them. The intensity of the activities is lower than we have seen before, and all of this stems from this risk management process. Wizz Air is an example of a company that was the second largest company in Israel in 2023 and is still flying to Israel today, but it is flying much less frequently. This indicates that it is not afraid to fly, but it is reducing the volume of activity. This decline for foreign companies will continue even if there is relative calm here, until 2025.”
“Flights are not bread,” says Avi Nakash, co-owner of Arkia, about ticket prices. How do you respond to that?
“That’s his opinion. I think that flying has become a basic necessity. It’s true that bread is the basic product, but you can also live without phones or cigarettes. Today, flying has become a consumer product in every sense of the word, and that’s what we also call a brand. Even our destinations we call ‘seasonal collection.’ We assume that every Israeli has the right to fly twice a year. This is a country where tourism is expensive, so we offer a much cheaper alternative for people who travel abroad and we see that in our market share, which is rising modestly.”
What is the current status of chartered aircraft? How do you deal with foreign crews and what are the solutions?
“Last year we operated six planes with our own crews and three others on lease. The foreign crews and planes were based in Tel Aviv and maintained a flight schedule from there. On October 7 and shortly after that they left Israel, and we found a solution to the problem – we brought another plane and today we have four leased planes. In my opinion, since the beginning of the security tensions, we have cancelled no more than 10 flights, and we operate between 40 and 50 flights a day.”
Israir Revenue Path
Investors were left disappointed by Israir’s financial results, with the stock price falling 7% on Wednesday. The results showed a decline in revenues but an improvement in operating profitability and even net profit in the second quarter compared to the same quarter last year. However, Israir’s stock is underperforming its main competitor in the Israeli aviation sector, El Al. Since the beginning of 2024, Israir’s stock price has fallen 9%, while El Al’s stock has risen 70%.
In the second quarter, revenues amounted to NIS 89.3 million, down 15% from the same quarter last year. Israir said the decrease in revenues was due to a decline in demand and activities of its subsidiaries, especially in inbound tourism, due to the security situation following the war since the last quarter of 2023.
But Israir’s gross profit margin rose significantly to 19.8% of revenue, compared to 12.9% in the same quarter last year. In this context, Israir appears to have found a very lucrative revenue stream in the form of “ancillary income,” which is paying for a bag stored in the cabin and services of this kind. The company reports that second-quarter revenue from ancillary products amounted to $6.9 million, reflecting an increase of $45 per passenger (on a round trip). This amounts to $23-28 million annually.
Ezrair’s net profit rose 44% to $7 million in the second quarter due to improved profitability rates, despite lower revenues. However, in the first half of 2024, net profit eroded 19% to $6.3 million, as Ezrair incurred a net loss in the first quarter.
This article was published in Globes, Israeli Business News – en.globes.co.il – on August 22, 2024.
© Copyright Globes Publisher Itonut (1983) Ltd., 2024.
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