El Al Looks to New Planes to Reassert Dominance

YERUSHALAYIM (Reuters) —
An El Al plane at Ben Gurion Airport. (Tomer Neuberg/Flash90)
An El Al plane at Ben Gurion International Airport. (Tomer Neuberg/Flash90)

El Al is betting on a billion-dollar overhaul of its aging fleet to claw back market share dented by relentless competition from low-cost carriers and a damaging dispute with pilots.

El Al was once the go-to airline for most Israelis, thanks to the kind of stringent security that sees it equip planes with missile defense systems. But it has frustrated customers over the past decade with an aging fleet that has borne poor comparison with competitors that offered newer jets fitted with the latest in hi-tech entertainment and comfort.

The average age of its 19-strong long-haul fleet of Boeing 767s, 747s and 777s is 18 years, with 14 of them more than 21 years old. By contrast Turkish Airlines, the second-largest carrier operating in Israel after El Al, has a fleet that averages four years for its long-haul 777s and Airbus A330s.

Dganit Palti, El Al’s chief financial officer, acknowledged upgrading the fleet was a pressing need for the company. Next year, the carrier will start to receive the first of 15 “787 Dreamliner” planes in a $1.25 billion deal. It also has an option to buy 13 more 787s, which are 20 percent more fuel efficient.

“In 2020, when we finish replacing all wide-body planes, the average [age] will be six years,” Palti told Reuters. “The Dreamliner and the replacement of the wide-body fleet will give us a big advantage.”

El Al’s fleet issues have been magnified by Israel’s 2013 open-skies agreement with the EU that has allowed more low-cost airlines like easyJet and Wizz Air to operate services to Israel, presenting travelers with a wide assortment of prices, flying times and days, and connections.

The past year has also been a particularly punishing one due to a dispute with its 600 pilots, who on average were earning $25,000 a month because of generous overtime and other benefits, which hit the airline’s profit margins.

By comparison, a pilot at Lufthansa, among the best paid in Europe, earns on average $190,000 a year before tax, though a captain on the highest pay level can earn as much as $23,400 a month before tax.

The dispute, which led to delays and cancelations, has now been resolved. But the row, along with the carrier’s aging fleet, tickets that are often hundreds of dollars more expensive, and fierce competition, has tested the loyalty of many Israelis who still prefer to fly El Al because of nonstop flights, tough security and Hebrew-speaking crews.

From a 50-percent share of all flights to and from Israel a decade ago, the airline barely retains a third of the market and is losing shares by the month. Its share price is down by about 12 percent this year.

Experts believe it could take at least another year — when new long-range aircraft finally join its fleet for flights to North America and Asia — for El Al to begin winning back customers who turned away from it.

In 2016, El Al is forecast to make $70 million to $80 million after tax, after a record profit of $106.5 million in 2015.

“They have an advantage in terms of security and they have things other airlines don’t have, like defense systems on planes,” said Noam Pincu, an analyst at the Psagot brokerage in Tel Aviv.

They are considered to be more safe,” he said, also referring to strict preflight screening procedures at the airport and armed air marshals on board every plane.

But Pincu said that as long as fuel prices stayed low, El Al could remain profitable, but that the new fleet was crucial to securing its future. “If they would’ve stayed with the 747s then eventually people would stop flying them.”

 

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