Threat of an Iranian attack leaves El Al without any competition

Not surprisingly, El Al has built a winning business, with a $147 million net profit in the second quarter of this year and a 92% occupancy rate. 

These calculations were made prior to the assassination of Hamas arch terrorist Ismail Haniyeh in a Tehran hotel room, causing the Iranians to accuse the Israelis of killing a foreigner in their capital, and raising their saber rattling to new heights.

Overnight, the mere threat of Iranian retaliation erased any signs of competition with El Al. United and Delta airplanes disappeared from Ben-Gurion Airport. The only two legacy carriers remaining from among the European airlines are British Airways (picking up a new crew in Larnaca) and Air France.

The Israeli carriers, including Arkia and Israir – in addition to El Al, along with a smattering of low-cost carriers – have the skies to themselves. Ryan Air, which had been flying to Israel, just announced they were pulling out until the end of September.

To North America, there is no Air Canada, no American, no Delta, and no United. El Al has a monopoly on nonstop flights to the US, filling its planes to Boston, Newark, JFK, and Los Angeles.

Some of its competitors are planning to return once the Iranian threat has either been removed or acted upon. American Airlines has not touched down since last October, and has announced it won’t be come to Israel before next April.

Other airlines’ absence is ostensibly short term, be it Virgin Atlantic – who has delayed returning until September 25, or Delta Airlines – until September 2. However, despite these projections, it is unlikely that they will return until the Iranian threat is neutralized. They will simply announce another postponement of their return “due to security concerns.” 

WHILE THERE has been a lot of chatter that United has canceled all of its flights from Newark to Tel Aviv until early 2025, we cannot assume that they have given up on the Israeli market altogether. They informed top travel executives that they preferred to put their flights on hold rather than have their clientele purchase tickets for flights that were most likely to be canceled “due to the security situation.”

I asked the United team in Israel why, since its flight crew was comfortable remaining in Israel for a couple of days while we were at war with Hamas and Hezbollah this spring and early summer, they are currently so adamant that an Iranian threat will lead to a regional war? And if, as the last three weeks have shown, no such attack is imminent, why not resume operations? I received no satisfactory answer.

Customers and travel professionals have learned their lesson and won’t be fooled again. Until the complete cessation of our war with Hamas and Hezbollah, the only smart move is to fly an Israeli carrier. 

While Delta has been excellent in offering alternatives to its stranded passengers, United has not, refusing to transfer them to any of their partner airlines and only offering passengers a partial refund or a voucher. 

United’s inability to solve passengers’ problems will be remembered by the traveling public when normalcy returns to our part of the world.

EL AL’s FIRST woman CEO Dina Ben-Tal Ganancia is riding a perfect storm. She has been handling everything thrown at her, from accusations of high prices and price gouging to the inability to increase capacity. She has remained in the public eye and, with a dignified aplomb, has so far kept El Al on target in the short-term message.

El Al finally understands that it is a people business as well as a transportation service industry. If you focus too much on transportation and forget the human element, you are going to have experience some challenging times. It all starts with delivering a reliable product. 

In the past, many chose to fly El Al for security reasons; now they do so for its reliability. This has caused a sea of change in El Al’s industry. The airline has improved service and added opportunities to make sure that their customers, experience genuine warmth and caring. 

El Al knows that offering an elevated experience will allow business to grow. The loyalty they have built will not dissipate when United and Delta or Lufthansa or Cathay Pacific return to Israel.

El Al is building a winning culture, beginning with its leadership, which is radically different from the executives I’ve dealt with over the past 20 years. El Al has learned that care in choosing your airline partners is vital to its success. Having Delta, Air France, and KLM as part of the El Al team enhances its value tremendously.

In the short term, El Al will ride the storm successfully and profitably, and its owners and shareholders will be generously rewarded. 

The question is: What about the long-term?

WHILE RELEASING its historic second-quarter results, El Al also announced the signing of a colossal airline purchase. The company has agreed to buy 31 Boeing 737 Max planes at a cost of up to $2.5 billion dollars, stating: “This deal represents a further step in the realization of our strategic plan, and will support expansion of our destinations map, greater frequency of flights to existing destinations and an advanced flying experience.”

The Boeing 737 MAX is the fourth generation of the Boeing 737, a narrow-body airliner and successor to the Boeing 737. El Al is set to acquire 737 MAX-800 and MAX-900 airplanes with the ability to fly around 3,500 miles, a little over the distance of an LA to New York flight. 

The 737 MAX-900 is slightly larger and can seat 220 passengers, compared to the 210 passengers that fit on the 737-800. El Al’s first 20 new planes, to be delivered in 2028, belong to these two types. 

Most analysts reported this news without questioning the logic behind it. Where is El Al’s most profitable market? North America. Flights to Tokyo and the Far East are places that both the Israeli business and leisure clients covet.

These cities require aircraft capable of flying these distances

Flaws with El Al 

These new planes cannot fly El Al passengers to anywhere in the US or Canada; forget about Japan or the Far East. They can fly to India but no further. El Al’s three-class system of economy, premium, and business class on its long-haul carriers has been a major reason why its profits have risen. 

The 737 MAX-800 and 900s are currently configured in only two classes, economy and business class. These planes will replace El Al’s present fleet of 737s which has been in operation for over a decade. That will lead to a 20% saving in fuel costs, according to Boeing.

All good and fine if expanding into Europe is El Al’s great strategic design. It was barely 11 years ago that El Al proudly announced UP, its new low-cost air fleet, which commenced flying on March 30, 2014, to Berlin, Budapest, Kyiv, Larnaca, and Prague. El Al was attempting to compete with Ryan Air, Wizz Air, and their ilk, believing that the flying public would flock to El Al. 

Planes were piloted and serviced by El Al, so their labor costs remained the same. Any flight over two-hours sold food. 

El Al kept up this farce for four and a half years, hemorrhaging millions of dollars trying to compete with both low-cost and ultra-low-cost carriers whose labor costs were far less than El Al’s. It was an unmitigated disaster as is generally the case when a legacy carrier tries to offer in-house low-cost flights. ‘

AIR CANADA ROGUE is Air Canada budget or low-cost carrier. Air Canada Rouge flights are often integrated into Air Canada itineraries, although separate tickets can be priced lower. 

As with other low-cost carriers around the world, the low price of Air Canada Rouge comes with less legroom, more densely packed seating, and fewer services. It certainly hasn’t brought in great profits but the dearth of low-cost carriers inside Canada has kept it afloat.

It is possible that the purchase of these new planes may not only be to replace El Al’s existing fleet? It may be another misguided attempt to go after the low-cost carriers. I would have advised El Al to spend more of that $2.5 billion on long-haul aircraft, primarily to the long-haul destinations where El Al growth is destined to increase.

Israelis, like most passengers, have a short-term memory. That the 737 MAX was grounded by Boeing and by the US Federal Aviation Administration between March 2019 and December 2020 has been forgotten, pretty much. The memory of those flyers who, upon their return, eschewed traveling again on those planes has receded into the background. 

Boeing has changed its CEO in light of the 737 MAX failures. Earlier this year, an emergency exit flew off an Alaska Air 737 Max 9, although the pilot managed to land the aircraft safely. El Al’s fleet of 737s were grounded – as well until intensive investigation proved them airworthy.

Still, Europe is not El Al’s friend, nor a major growth market for the airline in the next five to 10 years. Iran may have won the battle in grounding most foreign aircraft, but El Al easily is winning the war.

The “day after” will arrive. The war will end; the hostages will be returned. Israel will have elections.

El Al must stay above this, keeping its laser focus on how to cash in on its present good fortune. Whether El Al has truly changed its culture, only time will tell. 

Mark Feldman is the CEO of Ziontours, Jerusalem and a Director at Diesenhaus. Send questions and comments to mark.feldman@ziontours.co.il