El Al profit slumps as low-cost competition bites

El Al, photo: Sivan Farag

El Al CEO: The company faces growing competition from low-cost airlines.

El Al Israel Airlines Ltd. (TASE: ELAL) today published its financial results for the fourth quarter of 2017 and the entire year. The company's net profit plummeted from $80.7 million in 2016 to $5.7 million in 2017. The airline's revenue rose from $2.038 billion to $2.097 billion, a 3% increase, and the number of passengers was up 2.4%.

El Al's market share fell from 32.6% in 2016 to 28.5% in 2017, while the number of passengers moving through Ben Gurion Airport jumped 16% to 5.6 million.

The airlines operating expenses were $110 million higher in 2017 than in 2016, among other things because of higher salary expenses, which were affected by the strengthening of the shekel against the dollar, labor agreements, and a provision for bonuses for the preceding year. Fuel expenses rose because of higher jet fuel prices, higher taxes, and other reasons.

Operating profit totaled $29 million in 2017, compared with $110.6 million in 2016, while pre-tax profit reached $8.7 million, compared with $93.4 million in 2016.

El Al said that despite the fall in its profit, the company was generating a high positive cash flow, and its liquidity continued to be high. Cash flow from current activities totaled $284 million in 2017, compared with $243 million in 2016; EBITDA amounted to $197 million, compared with $287 million in 2016; and El Al's balance of cash and deposits amounted to $286 million as of the end of December.

The company's revenue totaled $512 million in the fourth quarter of 2017, compared with $461 million in the fourth quarter of the preceding year. El Al posted a $29.7 million net loss in the fourth quarter, compared with a $2.4 million net loss in the corresponding quarter in 2016

El Al CEO Gonen Usishkin said, "The company faced growing competition in the Israeli civil aviation market in the 2017 as a result of the substantial increase in the number of seats on flights by foreign airlines, particularly the low-cost airlines. Despite the challenging business environment, the company posted 3% revenue growth, while its expenses grew primarily as a result of changes in the shekel-dollar exchange rate, which affected both salary expenses, and a rise in fuel prices and other expenses.

"El Al is in the midst of a strategic process of adapting the company to the changes necessary in order to maintain its competitive status and continuing positioning as the leading player in the Israeli civil aviation market: procurement of new advanced Dreamliners, which we regard as a factor that changes the rules of the game for the company, upgrades the passenger experience, and saves on the company's operating expenses; expanding the network of routes in North America - Boston, Miami, and San Francisco - and increasing the frequency of El Al's flights to its destinations; and investment in the digital theater in order to substantially and improve the airline in this area, and in Internet on airplanes. In addition, we are still improving our operational accuracy, fortunately with great success.

"We are also in the midst of changing the format of our flights to the company's destinations in Europe in order to devise a solution vis-a-vis low-cost flights, which are gaining an increasing share of passenger traffic at Ben Gurion Airport. In this framework, we have consolidated the company's brands in Europe under the El Al brand name in order to improve the customer's experience and later achieve operational efficiency. At the same time, we are maintaining our business class for our loyal business customers. The new model enables El Al passengers flying to Europe to fly at a worthwhile price and choose the flight package suitable to their needs, with complete transparency."

Published by Globes [online], Israel Business News - www.globes-online.com - on March 21, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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El Al, photo: Sivan Farag
El Al, photo: Sivan Farag
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