For over a year, US airlines have not regularly operated flights to Israel, leaving El Al Israel Airlines Ltd. (TASE:ELAL) as the only carrier operating direct flights between Israel and the US. The worsening situation imposes a de facto blockade on sectors of the economy that manage close business relations with North America, in particular the tech sector, which depends on the US as its source of revenue and investment. Two thirds of the capital raised by Israeli tech companies over the last quarter came from outside Israel's borders, mainly from the US.
Since October 7, some of the routes between Israel and the US have continued to operate, albeit in a disrupted way, but the assassination of Hamas leader Ismail Haniyeh in Tehran at the end of July reshuffled the deck. Almost all major foreign airlines suspended flights to Israel - first for a few days, then for months. Delta has extended its cancellations until March 2025, while American Airlines and United have said they will not resume flights until further notice.
The dire situation culminated at the end of September, following the assassination of Hezbollah leader Hassan Nasrallah, with the EU Aviation Safety Agency (EASA) recommending against flying to Israel. European airlines suspended their flights to Israel, ending the option of relatively convenient connection flights to the US with carriers like Lufthansa, Air France, KLM and British Airways, and making it even harder to reach North America.
Tech executives have been forced to pay high fares on El Al, or travel on inconvenient and time consuming connection flights. One senior Israeli tech executive who has raised hundreds of millions of dollars abroad said, "How do we manage? We book El Al many months ahead, pay double and forgo business class including the CEO."
Committed to making flights cheaper
Last week Israeli venture capitalists Aleph partner Michael Eisenberg and Insight Partners managing director Liad Agmon called on Minister of Transport Miri Regev to intervene on the matter and prevent a dangerous trend, in which Israeli tech companies are hiring employees abroad, at the expense of Israeli managers who cannot fly. In response, DemocraTech announced it is holding talks to operate an airline between Israel and the US between January and March, with the aim of opening it up to the general public as well.
DemocraTech is an organization founded by leaders of the high-tech protest against the government's judicial reform. The leaders include former Kaltura president Michal Tsur, Wix president Nir Zohar, Meta VP and general manager Israel Adi Soffer-Teeni, Fiverr CEO Micha Kaufman, and Qumra Capital VC fund founding partner Erez Shachar. The name for the new airline operations used internally by the organization is Airtech.
The difficulty of getting to the US, DemocraTech insists, directly affects business and relations with investors. Currently, the tech organization is conducting commercial negotiations with several airlines, and believes there is a high chance of success, "We decided not to wait for solutions from the Ministry of Transport but to produce them ourselves," the organizations says.
The flights will be weekly, departing at midnight from Israel and landing at Newark Airport early in the morning on weekdays, with one flight departing over the weekend. DemocraTech does not rule out increasing the frequency of flights if there is demand.
The ultimate target is 36 weekly flights on a "wet lease" - leasing aircraft including the pilots and air crew - from a company that also markets and sells the tickets. According to the plan, the flights would be undertaken in wide-body planes, such as Airbus 300-330 or Dreamliner, which will allow more than 250 passengers to fly in each direction. For this purpose, an application has been made to companies operating on a wet lease model so regular airlines such as United or Delta will not be participating in the endeavor.
The initiative by the tech executives, would certainly ease the plight if implemented, and is not their first experience involving aviation. At the outbreak of the war, the Democratech privately leased planes to help bring reservists and tourists home to Israel, after seeing the lack of government involvement in the matter. However, there is a big gap from that sporadic activity and the operation of a regular line for three months.
DemocraTech is committed to lower fares than those offered today by the companies operating on the Tel Aviv-New York route. They plan to operate a plane on a round-trip flight at a cost of between NIS 200-300,000, not including insurance, the cost of which has jumped fivefold since the outbreak of the war. In their estimation, they will be able to provide fares that are close to those of before October 7, about $800-1,000 return for tourist class and $4,000-5,000 for business class.
Skepticism
However, a senior figure in Israel's tech industry who is familiar with what is going on at DemocraTech, points out a number of challenges that have not yet been overcome and says that "they are only halfway there and there is still no certainty that the project will be established." He says, "Insurance costs have jumped and the organization is expecting government assistance on the matter. The initiative will also need possible legislation regarding the granting of an exemption from compensation for passengers whose flight was postponed out of necessity, the so-called 'Tibi Law,' which may result in significant losses for the initiative. On the other hand, more flights to Israel may break up El Al's monopoly and cut the high prices of commercial cargo, something that would help the venture to generate income and perhaps also balance the losses, if and when these arise."
Aviation and tourism expert Yossi Fischer is skeptical about the ability to provide low fares. "The company from which the planes will be leased must be American due to the open skies agreements between Israel and the US. Today, insurance premiums are high and US crews are reluctant to come to Israel. If these costs are contained in the ticket prices, it is not clear how it will be possible to provide a uniform price, and certainly not lower than the prices on the market."
"A viable but temporary solution"
To spread the risk among many parties due to the voluntary nature of the project, it has been decided to raise a commitment of NIS 20,000 from each company that wishes to order plane tickets to participate in the expenses. If the venture makes a profit, the companies will get their money back plus a return, when the recommendation will be to donate it elsewhere. As far as is known, the company has not yet contacted government officials - Ministry of Transport or Ministry of Finance - to request assistance with legislation or subsidy issues.
Flying Capet VP marketing and sales Oren Cohen Meguri explains that a company that wants to lease a plane turns to brokers who represent the airlines in Israel and through them the bureaucratic process is conducted, which includes pricing, approvals, slots and dialogue with foreign airports. According to him, this is a viable move. He says, " Because there is no competition on the route to New York and the demand is so high, DemocraTech will be able to decide on a uniform fare and build on the stable demand to make it profitable to operate the line. But this is a temporary solution. As soon as the market returns and there is competition there will be no place for such a thing."
Not everyone may look favorably on the venture, led by El Al, which also flies the Tel Aviv-New York route. In the tech industry, there are fears of competitive moves it might take, for example, lowering fares that would financially harm the venture, and they are pinning their hopes on the Competition Authority commissioner to prevent this due to the fact that this is a temporary solution to a market failure in time of war.
Published by Globes, Israel business news - en.globes.co.il - on November 4, 2024.
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