For more than a year, American airlines have not operated regular flights to Israel, and they left El Al Israel Airlines Ltd (level:Ellal) as the only carrier that operates direct flights between Israel and the United States. The worsening situation imposes a virtual siege on sectors of the economy that operate close trade relations with North America, especially the technology sector, which relies on the United States as a source of revenue and investment. Two-thirds of the capital raised by Israeli technology companies during the last quarter came from outside Israel’s borders, especially from the United States.
Since October 7, some routes between Israel and the United States have continued to function, albeit in a disrupted manner, but the assassination of Hamas leader Ismail Haniyeh in Tehran at the end of July led to a realignment of matters. Almost all major foreign airlines suspended flights to Israel – first for a few days, then for several months. Delta extended its flight cancellations until March 2025, while American Airlines and United said they would not resume their flights until further notice.
The dire situation reached its peak at the end of September, following the assassination of Hezbollah leader Hassan Nasrallah, with the European Union Aviation Safety Agency (EASA) recommending against travel to Israel. European airlines have suspended flights to Israel, ending the option of relatively convenient connecting flights to the United States with airlines such as Lufthansa, Air France, KLM and British Airways, and making access to North America more difficult.
Technology executives were forced to pay high prices on El Al, or travel on uncomfortable and time-consuming flights. “How do we manage it? We book El Al several months in advance, pay double and give up business class, including the CEO,” said one senior Israeli technology executive who has raised hundreds of millions of dollars abroad.
Committed to making flights cheaper
Last week, Alef’s Israeli partner, Michael Eisenberg, and Insight Partners’ managing director, Liad Agmon, called on Transport Minister Miri Regev to intervene in the matter and prevent the dangerous trend, whereby Israeli technology companies are hiring employees abroad, at the expense of… Israeli managers. Who cannot fly. In response, DemocraTech announced that it was in talks to operate an airline between Israel and the United States between January and March, with the aim of opening it to the general public as well.
DemocraTech is an organization founded by leaders of high-tech protests against government judicial reform. Leaders include former Kaltura president Michel Tzur, Wix president Nir Zohar, Meta Israel vice president and general manager Adi Soffer-Teeni, Fiverr CEO Micha Kaufman, and Qumra Capital VC fund co-founder Erez Shachar. The name of the new flight operations used internally by the organization is Airtech.
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DemocraTech insists that difficulty accessing the US directly affects business and investor relations. The technical organization is currently conducting commercial negotiations with several airline companies, and believes that there is a great chance of success. The organizations say: “We decided not to wait for solutions from the Ministry of Transport, but to produce them ourselves.”
The flights will be weekly, departing at midnight from Israel and landing at Newark Airport early in the morning throughout the week, with one flight departing over the weekend. DemocraTech does not rule out increasing the number of flights if there is demand.
The ultimate goal is 36 weekly flights under a “wet lease” — leasing aircraft including pilots and flight crew — from a company that also markets and sells tickets. According to the plan, flights will be carried out with wide-body aircraft, such as Airbus 300-330 or Dreamliner, which will allow more than 250 passengers to fly in each direction. For this purpose, a request has been made to companies operating on a wet lease model so that regular airlines such as United or Delta are not involved in this endeavour.
The technology executives’ initiative would certainly ease the ordeal if implemented, and it’s not their first experience with aviation. At the outbreak of the war, the Democrats chartered private planes to help return reservists and tourists to Israel, after noticing the lack of government intervention in the matter. However, there is a large gap between that intermittent activity and the regular line operation for three months.
DemocraTech commits to lower prices than those offered today by companies operating on the Tel Aviv-New York route. They plan to operate a round-trip plane at a cost of between 200-300 thousand shekels, not including insurance, the cost of which has jumped five-fold since the outbreak of the war. In their estimation, they will be able to offer fares close to those before October 7, around $800-1,000 round-trip for economy class and $4,000-5,000 for business class.
Doubt
However, a senior official in the technology industry in Israel, who is familiar with what is going on at DemocraTech, points to a number of challenges that have not yet been overcome. “They are only halfway through and there is still no certainty that the project will be established,” he says. He says: “Insurance costs have jumped and the organization expects government assistance in this regard. The initiative will also need possible legislation regarding granting an exemption from compensation for travelers whose trip was postponed out of necessity, the so-called taybi.” On the other hand, more flights to Israel could break up El Al’s monopoly and reduce high prices for commercial shipments, which would help the project generate income and perhaps balance it out as well. Losses, if and when they occur.”
Aviation and tourism expert Yossi Fischer doubts the ability to provide low prices. “The company from which the aircraft will be chartered must be American due to the open skies agreements between Israel and the United States. Today, insurance premiums are high and American crews are reluctant to come to Israel. If these costs were contained in ticket prices it is not clear how it would be possible to save a price Uniform, and certainly not lower than existing market prices.”
“A viable but temporary solution”
In order to distribute the risks to several parties due to the voluntary nature of the project, it was decided to raise a commitment of 20,000 shekels from each company wishing to order plane tickets to share in the expenses. If the project makes a profit, companies will get their money back plus a return, when it would have been recommended to donate it elsewhere. To our knowledge, the company has not yet contacted government officials – the Ministry of Transport or the Ministry of Finance – to request assistance with legislation or support issues.
Oren Cohen-Migori, Vice President of Marketing and Sales at Flying Capet, explains that a company that wants to charter a plane turns to intermediaries who represent airlines in Israel and through them the bureaucratic process takes place, which includes pricing, approvals, periods and dialogue with foreign airports. According to him, this is a viable step. “Since there is no competition on the route to New York and demand is very high, DemocraTech will be able to set a uniform fare and build on the stable demand to make running the line profitable,” he says. “But this is a temporary solution. Once the market returns and there is competition there will be no room for such a thing.”
Not everyone may look favorably on the project, led by El Al, which also flies the Tel Aviv-New York route. In the technology industry, there are fears that competitive moves might be made by, for example, cutting prices that would hurt the enterprise financially, and they are pinning their hopes on the Competition Authority Commissioner to prevent this because this is a temporary solution to wartime market failure.
Published by Globes, Israel Business News – en.globes.co.il – on November 4, 2024.
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