If there is a consensus around El Al Israel Airlines Ltd. (TASE:ELAL) in the capital market, it is that when the war ends, the national carrier's market share at Ben Gurion airport will shrink. Many investors are concerned that the stock's pricing is already too expensive, nevertheless El Al's share price has risen 40% over the past month, including a 5% rise yesterday. El Al, led by CEO Dina Ben Tal Ganancia is currently traded at a market cap of NIS 4.3 billion, after its share price has risen 166% since the start of the war.
The jump in share price cannot be explained by the positive momentum of airlines worldwide due to strong demand for flights. Share prices of US airlines, for example, climbed handsomely last month but for the most part by high single digit figures (American Airlines rose 6.6%, Delta Airlines 8.6% while United Airlines stood out with a 11.6% rise). Even in Israel Rami Levi's Israir Group (TASE: ISRG) rose 'only' by 13% over the past month - easily outperformed by El Al.
The market believes that the delay in the return of foreign airlines to Israel is having a positive effect on El Al, especially on the profitable US routes, where El Al currently enjoys a 90% market share. On these routes airfares are very expensive. This is in contrast to the fixed-price routes that El Al operates to four destinations in Greece, Austria, Germany, and the UAE. "As long as the US airlines, led by Delta and United, do not return, El Al will continue to enjoy de facto control of the skies," market sources have told "Globes."
The world market is very strong
The results will be reflected in El Al's fourth quarter 2024 financial statement and investors are well aware that the first quarter of 2025 will also be very good for El Al - the question is just to what extent? In its third-quarter results, El Al stated that it estimates that the fourth quarter will be very good - better than the fourth quarter of 2023, but not as good as the third quarter of 2024. In the third quarter, El Al again broke all of its own records, with a profit of $187 million on revenue of more than $1 billion. The optimism regarding the stock can also be explained by the fact that in October-November, El Al tightened its grip on Ben-Gurion Airport. After its market share fell to about 40% in the previous months, in October El Al was again responsible for flying 50% of passengers at Ben Gurion Airport, and in November its market share rose to 57%.
Horizon Capital Markets CEO Itay Lipkovitz says, "It may not seem significant to us that the Houthis fire a missile every once in a while, but it has a huge impact on foreign airlines. El Al is now at full capacity with prices never seen before. Even if foreign airlines start to return in April, it will happen gradually and this means that the results of the first quarter will also be very strong, and in the second quarter too. We must remember that the global aviation market is currently very strong, there is a shortage, demand exceeds supply, capacity is full and everyone has work. This can also be seen in the great reports published by US airline Delta. If the market were weak, foreign airlines would have returned to Israel a long time ago."
Will El Al join the competition for Cal - Israel Credit Cards?
Meanwhile El Al is accumulating cash at a rapid rate. In the third quarter of 2024, it generated a cash flow of $320 million (compared with $93 million in the corresponding quarter of 2023), and its overall cash position swelled to over $1 billion, and its net financial debt shrank to just $376 million.
In October 2024, El Al bid to acquire control of credit card company Isracard, but quickly withdrew its offer "given the short timeframe set by Isracard, and the extensive review process required to make the investment." However, El Al reported that it "will continue to examine business opportunities that are consistent with its strategic plan, to expand the basket of products and services for its customers, including in the credit and financial sectors." The market is wondering whether El Al will bid in the near future to acquire another credit card company, such as Cal - Israel Credit Cards, when it is put up for sale (by mid-2027).
Lipkovitz says, "The company missed one deal, but it generates a lot of money and can do another deal. For example, acquire Cal later, or distribute a dividend." The logic in acquiring Cal, which Israel Discount Bank will have to sell, is clear. He says, "This will be an acquisition with a lot of synergy. El Al already has many customers in Israel with its Fly Card, which gives them access to data and also benefits from deals and advertising." As far as is known, however, such an investment is not currently on the agenda.
Published by Globes, Israel business news - en.globes.co.il - on January 13, 2025.
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