Open skies, Israeli airlines and the ego

Israel’s skies are being opened and Israeli airlines are struggling to stay alive.

At this point in time two of the three Israeli airlines have taken some steps to ensure their survival.

Israir, a small airline with two Airbus A-320s and two ATR-72s, has started cutting its operational costs. The airline’s headquarters has moved to a less expensive part of Tel-Aviv, and staffing levels have been reduced, especially among the management. But the most significant decision the airline has taken has been to focus marketing efforts on selling full holiday packages. “We offer our passengers a full package, and that increases our marginal profit,” says Israir’s CEO Uri Sirkis.

This full package strategy was achieved mainly through synergies between the airline and Natur, a tourism wholesaler owned by the Israir group.

The airline uses wet leased aircraft in peak seasons, and Sirkis says that this gives the small carrier the flexibility it needs.

Efforts have also been made to increase duty-free sales on board the aircraft.

But Sirkis admits that these steps, which will bring the airline close to break even in 2013,  are not enough. “We have to understand that with the open skies, the situation has changed dramatically,” he says. “The only real solution is to merge two of the Israeli airlines. This will save money and allow the merged airline to better cope with the new situation.”

El Al, Israel’s largest airline, has also acted in response to the new situation. It has launched its own low-cost operation, dubbed Up, and will begin flying to five European destinations in March.

The carrier will offer up to 11 weekly flights to and from Tel Aviv and Berlin, Prague, Kiev and Budapest, and up to six weekly flights to Larnaca.

“We are joining the trend in the international airline industry and the major world airlines, while being attuned to a variety of customer preferences,” El Al’s CEO Eliezer Shakedi says. “I am convinced that this process will improve our competitiveness, widen our customer base and respond well to passenger needs, and all at reasonable prices.”

El Al was actually forced to join the trend towards low-cost operations. Only in April, El Al led a protest against the open skies agreement with the EU.

In the meantime the European low-cost carriers are adding flights on the Tel Aviv route.

At this point, chances of merging two of the Israeli airlines (the third one is Arkia) seem very low.

In a speech Sirkis gave recently at an industry conference, he said that the ego should be put aside in order to make the right decisions. “We are already in injury time,” he said. “This is a last and final call to the decision makers.”

At this point, ego is the main obstacle why the necessary steps are not being taken.

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