El Al CEO: Passengers are voting with their feet

El Al CEO Gonen Usishkin Photo: Sivan Faraj

Despite declines in El Al's first quarter metrics, El Al CEO Gonen Usishkin is confident that improvements for passengers will eventually be reflected in the airline's results.

El Al Israel Airlines Ltd.'s (TASE: ELAL) fuel expenses may have fallen, but the timing of the Passover holiday in the second quarter, at the end of April, together with ever fiercer competition with foreign airlines (low cost and legacy) flying to and from Tel Aviv, led to a decline in El Al's average seat occupancy rate (load factor) from 83.6% to 80.90%, to a decline its market share at Ben Gurion Airport from 27.9% to 25.3%, and to a decline in average revenue per revenue passenger kilometer (kilometers traveled by paying passengers) from $0.78 to $0.76, in the first quarter of 2019 compared with the first quarter of 2018.

Talking to "Globes", El Al CEO Gonen Usishkin said the decline in average revenue per revenue passenger kilometer, which amounts to 2.6%, reflected the timing of the Passover holiday. "The yield is explained by the timing of Passover and the deployment of larger aircraft following the change in the aircraft fleet. Among other things, the Boeing 767s went out of service. These are adjustments we were forced to make with the replacement of the fleets and with the introduction of the FTL (flight time limit) requirements. The decline in the occupancy rate mainly reflects the timing of Passover. At the same time, we are investing a great deal of money and effort in strengthening the brand and the routes, with various projects that passengers too are aware of, and they are voting with their feet. At some point, we will see the impact of this on our results."

Has the switch to a pricing method based on three price levels, giving passengers an option they have not had before now of buying a basic ticket, hurt your revenue?

"The price segmentation is for passengers who want to choose what to add to their flight ticket. The switch to the new pricing is meeting expectations. It has not detracted from revenue per passenger, but it gives the required flexibility."

Will the fall in market share at Ben Gurion Airport mean that you will pay higher fees to the state?

"The significance is that the discount we received in accordance with our market share shrinks. We are in talks with the state and presenting our stance, which is that we think that the discount should not be based on market share but on activity, since we are using the same services, and per passenger we still have to pay the same amount. It’s a subject under discussion."

At the last aviation conference, the chairman of the Transport Workers Union at the Histadrut, Avi Edri, spoke of enforced streamlining at El Al.

"Striving for efficiency is part of El Al's DNA; it's a necessity, and everyone understands that. Manpower is a sensitive subject at El Al, which is constantly in dialogue. I can tell you that we are not planning unilateral steps, and that we are working in cooperation with the workers' representative body and with the Histadrut."

You place an emphasis on North America. Do you plan to open new routes to the developing Asia market besides the one to Tokyo that you announced this morning?

"North America is an important market for Israelis and for El Al in particular, and we invest a great deal in it. We opened a direct route to San Francisco, and in June we shall launch flights to Chicago and Las Vegas. The Tokyo route is a pearl. As far as China is concerned, the competition isn't necessarily rational. We are paying close attention and examining this market, and we shall adjust our activity."

From June, the commissions that El Al pays to travel agencies will reduce. Will you try to strengthen direct sales to passengers?

"El Al wants to strengthen its online sales channels, because that is what the customers want. We reached a satisfactory agreement with the Travel Agents Association, which we appreciate and recognize as a very important channel. At the same time, we are developing direct communications, with changes happening all the time as part of our drive forward and innovation and investment."

Ynet reported that El Al was planning to operate direct flights from Eilat's Ramon Airport to Europe, with Paris as a first destination.

"We are looking at Ramon and examining activity there. If we decide to open such a route, we will of course report it. The activity at Ramon is negligible in comparison the opening of routes to destinations such as Tokyo or San Francisco."

Published by Globes, Israel business news - en.globes.co.il - on May 29, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

El Al CEO Gonen Usishkin Photo: Sivan Faraj
El Al CEO Gonen Usishkin Photo: Sivan Faraj
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