El Al Israel Airlines Ltd. (TASE: ELAL) president and CEO Gonen Usishkin has told "Globes," that despite the opening of new long-haul routes to the US and Japan, Europe remains its strongest market.
He said, "28,000 of El Al's 32,000 annual flights are to Europe. This is a very important market, and we won't neglect it. We're not talking about profitability at the level of the individual route. I feel comfortable with Europe, which includes markets that are at the core of our strategy, such as London and Paris."
To prove the point, El Al announced today that it is launching new routes to Dublin and Dusseldorf next May and June respectively.
Will you consider starting international flights from Ramon Airport, or flights from Ben Gurion Airport to Eilat?
"We don't have such a plan now, but we're constantly considering Ramon Airport and activity there. At this stage, we're focusing on the company's core business, which is longer-range flights."
On today's second quarter financial results, which El Al published today, he said, "We're making progress, following publication of the airlines results for the second quarter of 2019. El Al reported an $83,000 profit in the quarter, compared with an $18 million loss in the second quarter of 2018."
"Globes": The financial reports are based primarily on the timing of the Passover holiday, which fell in April this year (but in the first quarter in 2018). How significant is this in the current report, and how satisfied is El Al with the numbers?
Usishkin: "I'm glad that we increased revenue by $40 million. We flew more passengers and improved our occupancy rate. I'm glad that in the first quarter and the ensuing period, we achieved progress in all of the our plans according to the timetable we set for ourselves, from putting new planes into service and putting away old ones, upgrading our product, changing the value of our frequent flyers club, and launching a new digital platform. We're making progress."
Is this momentum continuing this summer in activity and passenger traffic?
"Competition is making things hard, and we're pushing the company to deal with all of it. The routes we announced before are an important growth engine for the company. Today, we announced routes to Dublin and Dusseldorf, addition to the new routes to Chicago and Tokyo. This gives us a competitive advantage in a strategy based on a network of routes and the horizon plan, which is also making progress in cost cutting."
El Al's market share at Ben Gurion Airport has fallen below 26%. Will this increase your costs in fees and payments to the Israel Airports Auto Authority?
"The fees at Ben Gurion Airport are based on market share. It's hard to halt the slide, but we nevertheless expect the state to give us a discount for size. We're talking with the Airports Authority, because when you boil it down, we're flying more passengers."
The increase is less than the growth in passenger traffic at Ben Gurion Airport.
"El Al can't grow by a lot more than 10% for financial and operational reasons. That's the result of the open skies policy, which benefits the customers."
The open skies policy began six years ago, and El Al is still warning about intensifying competition.
"Global passenger traffic has grown by 5% in recent years, while passenger traffic at Ben Gurion Airport has grown by over 10%. This depends on Israel's economic prosperity, which is important, and I'm glad about it. Our market share is less important than this economic growth. People have more money available for overseas travel, and that also affects us."
How much does the dynamic pricing that makes it possible to buy tickets at three price levels, such as with no suitcase, for example, affect the increase in profit per passenger? Are most people choosing the cheaper basic ticket, and when will you apply this pricing to North America?
"In order to compete against the other airlines, we created a cheaper product for customers. It works according to expectations. It can't be said that most people are choosing the cheap ticket. There is a very sensitive segment willing to fly without a suitcase, while others prefer a ticket with everything included. It's a world designed to offer value. We're considering this policy for flights to North America, and we'll report when we get there."
The merger with Israir, which was not approved by the Israel Competition Authority, was designed to enable you to strengthen you in the vacation packages sector. Will you also move in this direction?
"There's no doubt that part of the company's future offer of value is vacation packages. We'll consider the best way of doing this."
How has the low shekel-dollar exchange rate been influencing you in recent months?
"It affects the company's salary costs and the purchases that it makes. El Al uses foreign currency hedges. It has less effect on volatility than the price of oil, which is the main factor. The exchange rate is improving Israelis' overseas purchasing power, and that's to our benefit from this direction."
You lowered the average length of time that your fleet has been in service to an average of 10.5 years. What is the significance of this?
"It's a dramatic improvement that enables us to make a comparison with the age of the foreign airlines' air fleets. Another byproduct is fewer malfunctions and maintenance costs and better fuel efficiency."
El Al has 43 airliners and 6,000 employees. That's a very high ratio in comparison with foreign airlines.
"We've streamlined the number of employees, and we'll continue this trend."
Published by Globes, Israel business news - en.globes.co.il - on August 28, 2019
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