Fair fares?

The dollar is plummeting. The shekel is strengthening. The Passover holiday is almost upon us. The only thing one feels like doing at a time like this is packing a suitcase and taking a vacation abroad. In shekel terms, the Israelis are getting tickets at prices around 15% cheaper on average than last year, but even that does not correspond to the 25% erosion in the shekel-dollar exchange rate over the past year. This is because in comparison to Passover 2007, air fares, chiefly those for regular flights, have increased. According to sector sources, these increases are designed to cover the losses airlines have been incurring in the wake of the erosion in currency rates and the hikes in fuel prices.

A number of factors should have improved things for Israeli tourists traveling by air this year, compared with last year - the announcement of the open skies policy; the adding by Arkia Airlines Ltd. of flights to Paris (for which it was given the green light just a month ago); the entry of low cost airlines such as British Midland (BMI); the launch of Delta Airlines' service to New York, and the extra flights recently announced by El Al Israel Airlines (TASE: ELAL). However, a "Globes" survey has found that despite all this, consumers are not much better off than they were a year ago. Air fares are set to rise with the onset of the Passover holiday season, and unlike previous years, they will not fall drastically again once it is over.

From short haul to long haul

To compare ticket prices the various companies are offering on three destinations that are favorites with Israeli tourists - Paris, London, and New York - we asked for the cheapest price in three periods: the upcoming weeks prior to the Passover holiday (which begins with schools closing on April 10), during the holiday season itself (April 10-27), and immediately after. We aimed to find out the lowest price for a ticket to each of the destinations in each of the aforementioned periods. All the prices are the minimum rates available in the past week, and may change in accordance with demand. The figures were collected from airlines, tourism operators, and their websites.

Since the range of air fares varies according to the ticket classes available on each airline's flights, demand for a certain flight could trigger a marked increase in ticket prices for that specific flight. As a consequence, being flexible in flight dates could increase the chances of getting a cheaper ticket. The prices were obtained at the end of last week and were correct at the time of the survey. Yet although these could still change, the survey highlights a trend.

Airlines periodically run special offers on airfares in which one can make advance bookings for future dates at attractive rates. Thus, for example, El Al and Israir Airlines Ltd. are offering tickets to a range of destinations up till the end of March at prices hundreds of dollars cheaper than the standard rates. To benefit from the special offer, travelers must pay upon reservation for tickets for outgoing flights starting from May 1.

Also worth remembering is the fact that the final prices of tickets are determined when payment is made, and these could increase from the time the booking was placed, either as result of changes in the shekel-dollar rate, or additional charges and fees that the airlines impose in the interim. El Al, for example, has already put up its air fares six times over the past year. In the latest price hike, which goes into effect today, fares each way will rise by $12 for short-haul flights, $22 for mid-haul flights and $33 for long-haul flights.

In addition, it is advisable to avoid being tempted by the airlines' promises, and compare prices. Arkia, for example, upon being granted designated carrier status on the Tel Aviv-Paris route, announced it would offer air tickets from $149, but it turns out that this is for one way to specific locations on selected flights during May and June. (As the table below shows, the prices Arkia is offering are similar, and are sometimes more expensive than those offered by other airlines operating on the same route).

New York from $1,065

The fall in the shekel-dollar rate coupled with the economic crisis in the US, has made it a lot cheaper for Israelis to spend their vacations there, with New York now a highly attractive destination. Aside from the companies which offer direct flights from Tel Aviv to New York (El Al, Continental Airlines, Delta Airlines, and Israir), one can also find flights with European airlines with a stopover in Europe. These flights can often work out to be cheaper, but it should be borne in mind that the extra stopover will make the journey longer.

El Al is offering tickets in the periods surveyed at $1,065, although the number of seats going at this price is limited. As of the date of the survey, seats at this price were available on a number of routes.

Israir is resuming its charter flights on the New York route from April 6, and its fare is the most competitive of all in the post-Passover period ($899). Israir operates three weekly flights to New York, as opposed to the regular airlines which run several flights daily.

The most surprising finding of all in the survey was that air fares at BMI, which only last week entered the Israeli market, are actually the highest of all for these periods. The company's fares to London start from $562. Fares to London are traditionally high at this time of year, and compete even with prices of tickets to New York. Sources in the sector blame the prices on the high taxes charged at London's Heathrow Airport. The survey found the cheapest tickets to the UK were those on Israeli and UK charter flights.

The addition of flights on the route to Paris was also supposed to have generated competition, after Arkia was granted designated carrier status on this route and began operating daily flights. The survey found, however, that for the time being the competition has not yet found its way to consumers' pockets, and that fares have not fallen below the $550 level. Even Arkia's announcement of air tickets to the city of lights from $149 has not yet translated into more supply, and according to staff at Arkia's sales points, the only seats at this price (one way) were available on a number of flights in May or June.

All prices below are in dollars:

Despite the convenience of converting dollar prices into shekels, sector sources claim there has been a substantial increase in the dollar-rates of air fares. According to Zvika Karpel, CEO of online travel booking firm Gulliver Tourism Ltd., the increase in prices was triggered by falling profits at airlines at the same time as the sharp spike in oil prices. "The decline in the currency exchange rate has caused acute difficulties for both retailers and wholesalers," he says. "The budgets of companies in the tourism industry are denominated in dollars, while their expenses are in shekels. The shock generated by the decline in the exchange rate has been so severe, it has eroded all the companies' profit-plans, and they were left with no choice but to allow a creeping increase in prices. While there are still a few tickets on special offer or at low prices around, the overall trend will see an increase in dollar prices. It is important to remember that the companies that have been the hardest hit by the crisis are Israeli airlines such as El Al, or Israeli charter companies, whose administrative costs are usually in shekels, while their income is in dollars."

Karpel expects that if the currency exchange crisis persists, tourism will be affected as well. "In contrast to the substantial increase in bookings we've been experiencing in recent months, and the desire to pay upfront and save money now that the exchange rate is low, we've been witnessing a kind of hiatus in recent days. Our analysis shows that people are beginning to realize that the economy could be heading for a slowdown, and they are now having second thoughts."

Karpel also points out that in contrast to previous years, prices will not fall drastically once the Passover holiday is over. He says that the celebrations of the 60th anniversary of the State have led to strong demand for air tickets to and from Israel, and that all the cut-price tickets were taken several months back.

Yehuda Zafrani, deputy CEO for marketing at Ophir Tours Ltd., claims that the flood of bookings seen in recent months is continuing and will persist throughout the summer tourism season as well. "We expect that between 350,000 and 400,000 Israelis will be flying abroad during Passover, more than last year. At the same time, we also expect to see a marked increase in domestic tourism," he says.

Published by Globes [online], Israel business news - www.globes-online.com - on March 24, 2008

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