El Al faces a costly summer of discontent

El Al airliner Credit: Michal Raz-Chaimovitz
El Al airliner Credit: Michal Raz-Chaimovitz

With mounting flight cancelations, an agreement with the pilots is essential, if the airline is to return to profitability and restore customer confidence.

Ahead of the Labor Court hearing on Sunday, July 10, there are daily talks between El Al's management, the Histadrut (General Federation of Labor in Israel) and pilots committee to reach an agreement that will achieve industrial quiet and prevent flight cancelations, as far as is possible in today's flight industry reality. El Al also wants to use its Boeing 777 aircraft. The way ahead requires a compromise in which El Al gives in to some of the pilots demands over their salary and model of representation on the workers committee.

Meanwhile flight cancelations by many airlines continue each day, including El Al. On July 3, El Al canceled 5% of its scheduled flights, while on the same day worldwide 1,927 flights out of about 100,000, or about 2%, were canceled. Over recent weeks, El Al has been canceling 3-5 flights each day, mainly to short-haul destinations.

Flight cancelations reflect the worldwide manpower problems in both ground and air crews. Passengers are liable to learn that their flight has been canceled, in the best case scenario 24 hours before their flight, posing the challenge of finding an alternative flight to the same destination at very short notice, in a reality where most flights are already full. With such passenger anguish, El Al will be required to restore customer trust in a fractured company.

"The sick-leave method"

The short notice that passengers receive about a canceled flight is due to the practice of calling on pilots to take charge of flights, at the last moment. This is due to splitting flights, whereby one crew operates the flight in one direction, and another crew takes charge for the return flight.

According to El Al's statement to the Labor Court, this practice cost El Al $2.3 million, in just one month this year, with about 200 flights to North America alone split in this way. This involved costs in extra hours of pay, compensation for special calls for pilots, overnight stays, business class places on flights and more.

In this way, pilots' salaries are boosted, while there is also a likelihood that no pilot will be available, if the pilots being called on announce that they are sick, thus preventing the flight to take off. This is not official strike action, although the method, was called a wildcat strike by El Al in a particularly urgent request sent to the Labor Court in mid-June, asking it to issue an order, (which was refused), to instruct the pilots to do their job.

In the same request, El Al detailed that in May alone, 419 captains and officers did not report for duty because they were sick. According to El Al this was 13% of their flights. The number of sick pilots was four times higher than in May 2019.

In response to El Al's request, the Labor Court ordered the sides to immediately resume negotiations and report back on progress every few days. The Labor Court expects El Al management and the pilots to present a solutions and it looks like there is progress on this. El Al even notified the Tel Aviv Stock Exchange this week, "Signing of an agreement between the parties, depends on third parties over whom the company has no control." These third parties include the Ministry of Finance, which must approve every measure taken by El Al including any changes in the terms of employment of the pilots.

One of the pilots demands is to separate themselves from the El Al workers committee and to become an independent professional association for negotiation purposes, as is the case with most airlines around the world.

Another demand relates to the collective agreement the pilots signed in 2018 but which was amended during the Covid pandemic, when 10% of the pilots were laid off, their basic salaries were cut by 31%, and 39% for those who were put on unpaid leave. The pilots refused to sign the new collective agreement but the Histadrut signed it on their behalf and the Labor Court approved it). The agreement is valid until 2026, when some of the pay cut will be restored.

The pilots are demanding that their salaries be immediately restored to the pre-Covid level, as has happened to El Al's management who took a 20% pay cut during the pandemic, which has since been restored. The demand is also based on El Al's own optimistic financial report for the first quarter, which saw a rise in revenue, although the company was still making a loss.

But there is also a pessimistic side. In its request to the court, El Al reported that it accumulated losses in 2020 and 2021 amounted to $1 billion. A 'going concern' qualification was attached to its financial reports during this period and remarks questioning the airline's ability to survive. In this light, the current flight cancelations are seen as jeopardizing the company's existence.

Already paying the price

El Al is already paying the price for the frequency of its flight cancelations and will pay further for it in the future. Travel agents report that both tourists and business travelers, who usually fly El Al, have asked to travel on alternative airlines. One veteran travel agent said, "I have been selling trips and package tours for almost 20 years. If in the past, travelers saw the advantage of El Al, despite all the criticism, this year people are asking, 'anyone but El Al.'"

Israel's Aviation Law requires airlines to repay the fare to passengers of any flight that is canceled, as well as additional compensation of NIS 1,320 for flights of up to 2,000 kilometers, NIS 2,120 for flights of up to 4,500 kilometers and NIS 3,180 for flights beyond that. The airline must also pay for overnight accommodation, if required. Passengers can also sue for other damage inflicted on them as well as the emotional distress.

In monetary terms, this means that on a narrow-bodied Boeing 737 with 170 seats including 10% business class and 10% premium economy, at a conservative estimate of $700 return between Tel Aviv and Rome in economy class and $1,500 business class, El Al would have to pay back $130,000 in fares for a cancelled flight, and another $105,000 compensation.

In addition, the airline must find alternative flights for the passengers and when flights on other airlines are full, last minute fares are very expensive. Sometimes connection flights are the only alternative, while occasionally El Al has even leased another plane.

Overall, each canceled flight costs El Al about NIS 1 million before lawsuits, and with the necessity of persuading the passengers to fly El Al on their next trip abroad.

$2 million damage if El Al's 777s remain grounded

El Al has six wide-bodied 777 aircraft that have been flying since 2000. The company is now seeking to refit them and bring them back into service for its summer schedule, for long-haul flghts to destinations like Thailand.

El Al has actually already sold more than 30,000 tickets on the assumption that these planes will fly, according to the report it sent the Labor Court. For this to happen, El Al not only has to refit the planes but also train crews to work on them.

But in its report to the court, El Al said that its efforts to have the planes refitted and train the crews to fly them have failed "following a lack of cooperation." The airline added that if it cannot fulfill its plans for the 777s in the summer, then it will suffer damage of $2 million, "as well as irreversible damage to its image." The agreement being formed with the pilots includes completing the refit of the planes, and training the pilots accordingly.

Published by Globes, Israel business news - en.globes.co.il - on July 7, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

El Al airliner Credit: Michal Raz-Chaimovitz
El Al airliner Credit: Michal Raz-Chaimovitz
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