Low-cost airlines increase Israel flights market share

Wizz Air Photo: PR

Israel is one of the world's fastest-growing commercial flight markets but the infrastructure is struggling to keep up.

140 airlines operate routes to Israel, an exceptional number in comparison with the size of Ben Gurion Airport and the Israeli market. A large proportion of these airlines are low-cost airlines, which are the principal beneficiaries of the increase in the number of passengers. Ben Gurion Airport is slated to enter the worldwide category of large airports next year.

2019 will end with a new leading foreign carrier in the Israeli market. According to figures from the Israel Airports Authority, as of the end of November, the leading foreign airline in Israel was Hungarian low-cost airline Wizz Air, pushing Turkish Airlines into second place. In third place is UK low-cost carrier easyJet, a veteran presence on Israel's flight schedule. Passenger traffic from Tel Aviv on these two low-cost airlines has increased by 17% in 2019.

Traffic on Ryanair has grown 37% on its Israeli routes, and traffic on Air France-KLM subsidiary Transavia Airlines rose 23%. These four low-cost airlines had an aggregate 15% market share. Legacy airlines have also benefited from the increase in passenger traffic. Airlines with prominent growth rates included United Airlines (12%), Turkish Airlines with a continual increase in passenger traffic (operates ten daily flights to Istanbul), Delta Airlines (32%), and Austrian Airlines (30%). The bulk of the growth in passenger traffic results from the increasing number of Israelis traveling overseas (8.5 million a year), but tourist entries, which reached a record 4.5 million this year, also contributed to the industry's prosperity.

Growth in passenger traffic

The growth in passenger traffic in Israel is projected to reach 9% this year, almost double the global 5% growth rate. The open skies policy inaugurated six years ago, the fall in flight prices, lower shekel exchange rates against foreign currencies, and changing vacation habits (Israelis are flying more, including spontaneous vacations) have all helped increase passenger traffic. Direct flights from Tel Aviv to new destinations have been added: Brazil and Chile (LATAM Airlines), Chicago and Las Vegas (El Al Airlines), Seychelles (Seychelles Airlines), Air Rwanda, and others. El Al will launch a direct route to Tokyo in 2020, American Airlines will resume doing business in Israel with non-stop flights to Dallas, and El Al's pilot non-stop flights to Australia passed the economic feasibility test, putting Israel on the list of the world's longest flights.

A study of the Israeli market by the Oxford Economics research company for the International Air Transport Association (IATA) found that the civil aviation sector, including the foreign tourists visiting Israel, contributed 5% to Israel's GDP. IATA estimates that civil aviation contributed $16 billion and 184,000 jobs directly and indirectly linked to the sector (suppliers, tourism workers, aviation jobs, outsourcing, and so forth). Most of the airplane and passenger traffic from Israel focused on destination in Europe (7.8 million passengers), while passenger traffic to North America is increasing (1.4 million passengers). Traffic totaled almost 100,000 (from South America), 690,000 (from the direction of Russia), and Asia (882,000). IATA predicts that by 2038, passenger traffic to and from Israel will reach 34.2 million, an additional 13 million passengers in 20 years. IATA believes that by this date, global passenger traffic will double from the current annual 4.5 billion passengers today. Most of this growth will be from Asian countries, with a projected increase of 2.8 billion passengers.

Israel is attempting to carve out a share of this growing market by encouraging Chinese airlines to introduce non-stop flights (Sichuan Airline joined Hainan Airlines this year in operating direct flights from Israel) and orienting the local market to needs of Chinese tourists, among other things by making information available in Chinese. The number of Chinese visiting Israel totaled 150,000 in 2019, with real potential for growth in line with the dramatic increase in outgoing tourism from China. IATA believes that a revolution will take place in the list of countries providing the most passenger traffic in the world, with China slated to replace the US as the global leader. Further dramatic growth will come from India. The Indian market is currently in sixth place, and to reach fourth place and overtake the UK in third place in 2022. To what extent is Israel benefiting from these trends? The number of tourists visiting Israel from China was only half of the 300,000 tourists who visited from Germany, for example. The leading source of tourism to Israel is the US, with over 925,000 tourists from the US having visited Israel as of the end of November, followed by Russia (371,000 tourists) and France (350,000). Where does India stand? Air India operates direct flights on its route to Israel (the only flights to Israel passing over Saudi Arabia), as does El Al. The number of tourists visiting Israel from India in 2019 will reach 62,000, a number that can increase substantially.

Not enough guidance

"The market in Israel reflects the global trend," says IATA country manager Israel Kobi Zussman. "In order to continue growing, the government must recognize the importance of the local aviation industry. Israel is in essence an aviation island, and this is significant. We see countries like Turkey and Qatar in which the government clearly supports the aviation sector, and the sector responds accordingly. The hope is that the next government will adopt a more supportive policy on the industry in recognition of its contribution to the local economy." Zussman believes, "Israel is not an easy country for airlines. It has burdensome regulation and high and outdated taxes, there isn't enough guidance, and no one is examining aviation policy towards the Israeli companies."

The three Israeli airlines - El Al, Arkia Airlines, and Israir - are not benefiting from the growth in the Israeli sector. The three airlines aggregately account for 30% of all international passenger traffic. Arkia and Israir had to face the closing down of Sde Dov Airport and the airport in Eilat this year. Demand for internal flights from central Israel to Eilat, which currently operate on the Ben Gurion Airport-Ramon Airport route, has declined by 30%. Arkia, which operates 70% of the routes to Eilat, was hit heard, and is adopting extensive streamlining. Israir is scheduled to change hands in 2020, when IDB finds a suitable buyer for it and completes the sale of the company. Israir CEO Uri Sirkis mentions another change that has affected the aviation sector, which did not change its policy following the massive entry of low-cost airlines, and is faced with marketing channels in the form of the large websites "that have become a major sales channel for airlines tickets. For the small and local players, this is a challenging development. Besides the fact that it exposes us to competition from large players, including on our home court, it is forcing us to adopt new ways of thinking. Ticket prices have plunged 65% in the past decade, and profit per passenger has settled at $6. The consumer has gotten used to a regular $200 price for a ticket to Europe. This is a tough situation that is forcing the airlines' management to find a solution to questions of survival every day."

The Ministry of Tourism repeatedly mentions the economic contribution of tourism to Israel, with each tourist leaving an estimated average of $1,400 per visit in Israel, but has the country realized the national economic importance of the civil aviation sector? "Recent years have featured an increase in the number of passengers in Israel, thanks to competition and supply from the companies, but this requires an increase in ground and air infrastructure. The state has an enormous influence, but unfortunately has not realized this market's importance," Zussman says. "It's not enough to open the skies and distribute grants on flights to Eilat; we need a profound change, starting with aviation fees, which have not been seriously addressed for years. We need realization of the need for infrastructure in the air and on land, including a supplementary airport, which is only being talked about so far. The state itself is putting a glass ceiling on potential growth. When an airline buys airliners, it plans it for three years, including a plan for operating the plane for 20 years. It's hard to plan for the future in the Israeli market; something has to change here," he explains.

Published by Globes, Israel business news - en.globes.co.il - on December 25, 2019

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

Wizz Air Photo: PR
Wizz Air Photo: PR
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