Fifteen international airlines operate low-cost flights between Tel Aviv and various European destinations. This coming spring, they will be joined by El Al Israel Airlines Ltd. (TASE: ELAL), which will start to operate five Boeing 737 aircraft in a low-cost format on the Budapest, Bucharest, Berlin, Larnaca and Prague routes. This means that by the summer of 2014 there will be no scheduled regular-cost flights to these destinations from Israel, and all ticket sales by El Al for those destinations will on a low-cost format, i.e., a basic price for the flight ticket, over and above which there will be charges for seat allocation, baggage, and so on. Unlike low-cost carriers that sell tickets only online, El Al will permit purchases of tickets for low-cost destinations through travel agencies as well.
Another important difference between El Al and the foreign low-cost carriers, which will lend El Al an advantage in the eyes of the consumer, is that while the low-cost carriers that do not have representation in Israel, such as easyJet, are not subject to Israeli airline regulations regarding canceling tickets or compensation in cases of delays, El Al most certainly is.
El Al’s move is in response to rising competition under the “Open Skies” agreement that was signed this year with the EU, and which is being promoted by the Ministry of Transport and the Israel Airports Authority. The policy will include flights to non-European destinations as well. It has been reported recently that agreements have been signed with other countries, among them the Philippines and Canada, to extend service to these destinations directly, and via connecting flights. Another initiative that is meant to increase the frequency of low-cost flights from Israel is the opening of a new area on the west side of Terminal 1 at Ben Gurion International Airport (which previously served only domestic flights), to serve low-cost flights. According to the Israel Airports Authority, this winter 55 international flights per week are scheduled to depart from the new area of Terminal 1, 22 of them new flights, approved in accordance with the government decision to authorize all slot requests submitted by low-cost carriers. Beginning in the summer of 2014, the number of low-cost flights is expected to grow significantly, and it will be possible to operate 130 weekly flights (25-30 flights a day). Next winter, 100 low-cost flights per week are projected.
All the airlines that operate low-cost flights are expected to increase the frequency of their flights, and some will also add new routes. For example, Wizz Air is expected to launch a new route to Poland, and easyJet is expected to launch a new route to Berlin. European airline Ryanair, which is very aggressive when it comes to pricing, has not yet signed a deal with the Ministry of Transport, because it is demanding significant discounts on government-imposed entry fees. Despite the fact that the Ministry of Transport would be happy to see the promises of €50 flights from Tel Aviv to destinations in Europe realized, the fear is that if the discount on entry fees is granted to Ryanair, other carriers will demand an equivalent reduction in government fees.
What has the Israeli consumer gained from the increased number of players in the low-cost arena?
The answer is, of course, an increase in the number of options, and increased competition brought about by new players serving destinations to which there were once only charter or full-cost flights available.
What about the fares?
According to Issta’s VP of Marketing Ronen Carasso, the impact of the “Open Skies” policy on fares has not yet been fully felt. “This year, we paid less for a few destinations, mainly those served by easyJet and Wizz Air, but, beginning in 2014, I expect we will pay less. The equation is simple: there is demand, and there is more supply with low prices, which will draw the whole market down. We are still at the beginning of the road when it comes to the ‘Open Skies’ policy’s impact on airline fares - I believe we will see a reduction, and then the market will stabilize, as all markets do.”
Which destinations are expected to see lower fares?
“Primarily destinations in Western Europe, to which low-cost flights are popular. Fares to Eastern Europe are low already, and fares to the US or Thailand will not be affected. The same is true for package deals to vacation destinations in the Mediterranean Basin. I don’t see anyone operating low-cost flights to Rhodes or Crete. On the other hand, one destination to which prices will plummet is Berlin - as soon as easyJet begins flying there, along with the low-cost flights that El Al will be operating, we will see lower fares that we’ve ever seen before,” says Carasso.
According to Carasso, “another important element that the low-cost carriers bring with them is that they expose the Israeli tourist to less popular destinations, to which there were previously no direct flights, such as Cologne, Rotterdam or Manchester.”
Do Israeli consumers request low-cost flights when making reservations? Are they aware that they exist for a variety of destinations?
“The awareness has not yet peaked,” says Carasso. “We should remember that these flights are not for every consumer. People who regard a flight as a means to get from point A to point B will find what they are looking for, people seeking an “experience” will not be able to fly low-cost.”
“Globes” checked into fares to four destinations served by low-cost carriers and compared them to standard or charter flights, and found that on the two dates selected, in December and in April, the scales were not definitively tipped in the direction of the low-cost flights. In certain situations adjusting the dates two or three days in one direction or another cut the fare in half, but, in some cases, charter flights, such as Israir’s flight to Rome, were cheaper than easyJet, El Al, or Alitalia. For a flight to Warsaw, the lowest fare on December 26 was on Wizz Air - less than half the price on El Al or Lot. Based on this it seems that the consumer must conduct a price comparison to each destination.
Published by Globes [online], Israel business news - www.globes-online.com - on November 21, 2013
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