Volcano leaves Israeli airlines with mounting losses

Airlines are scrambling to bring passengers home to Israel.

The volcanic ash cloud that is shutting down air traffic over Europe is also seriously affecting Israeli airlines and other companies in the aviation industry.

If the crisis continues, it will cost El Al Israel Airlines Ltd. (TASE: ELAL) an estimated $20 million a week in revenue. El Al's flights to Europe account for half its activity and 60% of its seating capacity, since most flights are made by wide-bodied jets.

The economic impact on El Al over the weekend was reduced because the airline does not fly on Saturday. However, its charter subsidiary Sun D'Or International Airlines Ltd. has cancelled 90% of its flights, costing it millions of shekels a week.

European flights account for 20% of Arkia Airlines Ltd's operations in this season, since it also flies to numerous destinations in the Mediterranean basin, which are not affected by the volcanic ash cloud. The company currently estimates its losses at hundreds of thousands of shekels. CEO Gadi Tepper said that the airline has cancelled three flights so far, and one plane has been stranded on the ground in Paris since Thursday.

"Like everyone else, we're monitoring developments, and we're trying to adapt to the situation and respond accordingly. We'll try to go to destinations where it is possible to fly to in order to offer Israelis a way back home. We're considering increasing flights to Mediterranean basin destinations to offer alternatives to Israelis whose European vacations have been cancelled," Tepper said.

Arkia has announced more flights to Rome.

European flights account for 60% of Israir Airlines and Tourism Ltd's activity. The airline makes 24 weekly flights to European cities. CEO Ofer Green estimates the airline's losses at $230,000 a day.

"We're still flying to Rome on schedule, and as long as we do so, our losses will be slightly smaller. If the crisis lasts for a long time, it could change the face of the global aviation industry, but in events of this kind it's sometimes better to be small."

The economic damage is not limited to airlines, but is spreading to other companies affiliated with the industry. The Israel Airports Authority is losing tens of thousands of dollars a day from passenger fees, airport taxes, and landing fees.

Airline service vendors are also taking a hit in revenue. In-flight meals provider to many foreign airlines in Israel, ISS, reports an 80% drop in work, compared with the corresponding period of 2009. Duty free shop James Richardson Ltd. reports a slump in revenue, although it declines to get excited about the crisis for now.

Last night, El Al announced that it will increase flights using larger planes to European airports that are still open. Flights leaving today from Athens, Rome, Barcelona, and Madrid are due to collect passengers who cannot use their tickets on cancelled El Al or Sun D'Or flights. However, Barcelona's airport was closed this morning, and an El Al plane en route was forced to turn back.

El Al also reports a sharp increase in demand for tickets to the US, mainly by passengers who had planned to travel there on European carriers after a stop in Europe.

Published by Globes [online], Israel business news - www.globes-online.com - on April 18, 2010

© Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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