Will American Airlines impact Israel - US fares?

American Airlines

The announcement that the world's largest airline is resuming flights to Tel Aviv next year will add competition to the route.

What significance does the resumption of flights to Ben Gurion Airport announced last week by American Airlines, the world's largest airline, have to Israeli civil aviation? American Airlines, which obtained a Philadelphia-Tel Aviv route when it acquired US Airways in 2014, closed the route down in 2015 for failing to meet its commercial expectations. The announcement of the cancelation came as a surprise, including for its employees, and left a bad taste in the market that it abandoned.

American Airlines will now operate a direct flight between Ben Gurion Airport and Dallas-Fort Worth, American Airlines' main hub. The airline will offer continuation flights from Dallas-Fort Worth to a number of destination, both in the US and outside it (with an emphasis on Central and South America). Is this big news for the local market? Before answering that question, let it be said that competition is a good thing. More players offering passengers a range of options benefits the latter in price, service, and quality. At the same time, at this stage, no revolution is in store. It appears that El Al, which has the largest number of routes from Israel to the US, is not really concerned, because it does not fly to this destination. Adding more destinations in the future could be a game changer, but it will not happen now. Other airlines nevertheless cannot be indifferent to the new route.

According to Israel Airports Authority, from the beginning of the year until the end of July, passenger traffic to the US exceeded one million, 6% more than in the same period last year. The US has been the number one destination for Israelis for many years. There is a good reason for the emphasis that El Al puts on flights to North America. The competition that arose with the open skies policy and the entry of low cost airlines have wreaked havoc on flight prices to Europe, while the decrease in prices of flights to the US and other transatlantic destinations have been far less. El Al strengthened its hold on the market for flights to North America this year with routes also tailored to the haredi (Jewish ultra-Orthodox) market, as part of being a Sabbath-observant airline. El Al operates flights to New York, Boston, Miami, and Los Angeles. This summer, it began a seasonal flight to Orlando, shortly after launching a flight to Las Vegas (for which it will receive a grant from the Ministry of Tourism) and a direct flight to San Francisco, a line on which United Airlines previously had a monopoly. In March 2020, El Al is scheduled to launch a route to Chicago.

United Airlines, which operates flights to Newark and San Francisco, recently launched a direct route to Washington DC. Delta Airlines, which has the third largest business in routes between Israel and North America, also added to its activity this summer by launching another daily direct flight to New York. According to figures from the Civil Aviation Authority of Israel (CAAI), the number of weekly flights to US destinations rose to an average of 79 this summer, of which 54 were to New York. Even though American Airlines will fly from a destination to which El Al, Delta Airlines, and United Airlines have no direct flights, its activity requires the other airlines to be extremely alert, both because the new direct route will eliminate the need for their continuation flights and because of competition for destinations of continuation flights from Dallas-Forth Worth.

El Al will not be affected

CAAI's data show that 186,000 roundtrip passengers flew to the US in July, 19.5% more than in July 2018. Many of them, however, do so on connection flights via intermediate destinations. The fact that Turkey was the leading destination for Israelis' flights in July explains this. 80% of those flying from Israel to Istanbul (mostly on Turkish Airways) continue to other destinations, mostly in the US. In addition to the players operating direct flights, American Airlines' new route should also disturb airlines selling indirect flights to the US with stopovers in Europe (e.g. British Airways and Lufthansa) and Turkey (Turkish Airways).

Another interesting player will commence activity this September - Virgin Atlantic, which intends to bring about a revolution, with an emphasis on continuation flights from London to destinations in North America. British Airways is bracing itself for this competition. With the addition of American Airlines, British Airways has reason for concern.

American Airlines' flights, which will take 12-13 hours, will begin in September 2020. The prices, to be published two months from now, will be a factor in determining whether American Airlines will upset the market. As of now, it does not appear that American Airlines will expand its activity to El Al's strong destinations, such as New York, because American Airlines has a code sharing agreement with El Al, and will not compete directly with an airline with which it has cooperated for years. A senior civil aviation executive says, "It is true that this shows that American Airlines is looking in the direction of the Israeli market, but keep in mind that the worldwide rules of the game have changed; it should not be taken too seriously. Airlines fly anywhere there is potential, whether it's Tel Aviv or Kharkov."

As of now, three weekly flights are involved, and more may be added later. There are good elements for fully occupied flights in both directions: fundamentalist Christian tourism from the US and business tourism from Israel, based on the fact that Dallas-Forth Worth is a giant hub with many flights in the US. Here it appears that American Airlines will gain at the expense of its competitors flying to Latin America; the question is how much.

€750,000 grant

Talma Travel and Tours CEO Iya Magen, on the other hand, believes that American Airlines' reentry into the market has significance, because it strengthens the presence of the OneWorld alliance, which numbers American Airlines, British Airways, Cathay Pacific, and LATAM Airlines among its members. "Increasing the presence in the Israeli market of the leading company in the alliance is significant. Accumulation of miles and points in flights on four continents is an important advantage for passengers. For the airlines, its presence provides them with more flexibility," she says. British Airways, which is getting ready for the entry of Virgin Atlantic into Israel next month, should be mentioned in this context. As a co-member of the alliance with British Airways, American Airlines can provide its ally with backing for flights to North America. "American Airlines' return to Israel is a gentle one - three weekly flights is only half an entry. Five times a week are the minimum for gaining the attention of the business community, for example. But its activity will be judged by whether it continues and adds more destinations," Magen states.

Gulliver Tourism CMO Shiri Amiram says that the American Airlines' entry into Israel will "stimulate the competition. Maybe not for El Al's routes, but for the option of flying to destinations such as Dallas, and for continuation flights to South and Central America, the Caribbean Islands, and other destinations. We'll likely see an effect on prices, but not immediately. The airlines will keep a close watch on the situation, and then we'll see the response to the new/old competitor. American Airlines hasn't published its prices yet, but it will probably offer fairly attractive prices that will force its competitors to respond. At the same time, this is the "third envelope" of prominent destinations from Israel to the US, and will not affect the direct flights to New York, the hottest destination in North America."

American Airlines is represented in Israel by TAL Aviation. For operating a route from a new destination (Dallas), American Airlines will receive a €750,000 grant from the Ministry of Tourism for three weekly flights. The grant, which will be paid at the end of the first year, is designed to encourage incoming tourism to Israel. The grant is usually paid to airlines launching a new route (including El Al) that the Ministry of Tourism regards as "having potential for bringing tourism." Dallas is a Bible-belt center with potential for fundamentalist Christian tourism. Christian pilgrimage tourism in Israel constitutes the main segment among recreational tourists visiting Israel. 105,000 passengers visit Israel monthly, more than any other country.

In explaining its reentry into Israel, American Airlines said that opening the route was a result of "growing demand in traffic between the US and Tel Aviv. American Airlines will offer more convenient routes to technology cities, such as Austin and San Jose, plus 33 other cities in the US."

In addition to Israel, American Airlines plans to expand its activity to over 61 countries in which it currently operates. The airline announced new routes between Chicago and Kharkov, Chicago and Budapest, Chicago and Prague, and Philadelphia and Casablanca, its first direct route to Africa.

Published by Globes, Israel business news - en.globes.co.il - on August 12, 2019

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