El Al will struggle to compete with Emirates and Etihad

El Al
El Al

The opening of Saudi airspace is a double-edged sword for El Al. It will shorten flight times, and cut costs to the east but bring in formidable rivals.

The opening of Saudi airspace is a double-edged sword for El Al. It will shorten flight times, and cut costs to the east but bring in formidable rivals. It may be huge news for the Israeli aviation and tourism industry but for El Al Israel Airlines Ltd. (TASE: ELAL) it also heralds the start of a type of competition it has never known before from two of the world's most acclaimed airlines - Etihad Airways and Emirates.

El Al has already shown that it does not fare so well when faced with competition. Following the EU's Open Skies agreement, El Al lost out to competition from low-cost European airlines as well as to carriers like Turkish Airlines, which before the Covid-19 pandemic operated 10 daily flights between Tel Aviv and Istanbul, where most passengers caught connection flights to cities in Europe, North America and East Asia served by El Al.

But now El Al faces far more formidable rivals in Emirates and Etihad because of the strategic locations of their home hubs linking Israel and most of Asia through shorter and more direct routes and because of the reputation for excellence that the two UAE airlines have developed with service that is light years ahead of El Al.

Both Emirates and Etihad Airways are owned by their governments and are consistently ranked among the world's best airlines. This may not be good news for El Al but it is excellent news for Israeli travelers who will be able to fly on the two airlines via the UAE to al points in Asia.

Etihad Airways, owned by the Abu Dhabi government, has a fleet of 100 aircraft with an average of six years and a reputation for its business class service. In 2019, Etihad flew 17.5 million passengers and planes had average occupancy of 79%. The carrier flies to 84 destinations in 55 countries and hopes to add another Middle Eastern destination to that list.

Emirates, based in Dubai, is an even larger airline with a fleet of 270 aircraft flying to 157 destinations. With 60,000 employees, Emirates flew 56 million passengers in 2019.

A senior aviation sector source in Israel told "Globes," "The entry of an airline like Emirates is a huge threat to Israeli aviation and in particular El Al."

The source added, "Even before the crisis and before the change that will come about with the agreement with the UAE, Israeli airlines lost money when the Open Skies agreement reached its full expression. In contrast to Israeli airlines, the governments in the Gulf and the UAE throw money at various industries including aviation to encourage all strata of the economy. They set up amazing companies, innovative airports and the low price of fuel serves them well."

"The aim that they set themselves is to conquer the world and increase their market share in aviation and in other countries, with their hubs at their airports connecting the entire continent. It's an excellent location for flights to Australia, East Asia, and Africa and so here El Al and other carriers like Turkish Airlines have to be concerned, not only because of the excellent product of the UAE airlines but also because of the price that they can offer. There is no doubt that Emirate and Etihad can seize control of the market for flights to the east."

The same senior source added that Emirates and Etihad can also have a major impact on Israel's cargo flights market. "To date in cargo no Israeli company has operated flights to the east, and cargo has mainly been conveyed on passenger flights. The entry of these two companies can create competition in this as well and open up new options for cooperation. In normal times 70% of cargo was flown on passenger planes and as passenger traffic grows, including from these two airlines, they can also eat into the cargo sector."

Published by Globes, Israel business news - en.globes.co.il - on September 2, 2020 © Copyright of Globes Publisher Itonut (1983) Ltd. 2020

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