Monday, January 02, 2006

Israir seeking goverment O.K. to compete on the Tel Aviv-New York route

Business Week:

Low-cost rival Israir is seeking goverment O.K. to compete on the Tel Aviv-New York route.

And El Al is fighting hard to swat the threat.

El Al may not seem like much of a Goliath as international airlines go. But the now privately owned Israeli carrier is increasingly being portrayed on its home turf as a giant that doesn't want to face local competition. The Israeli government is due to decide soon whether to designate a second Israeli scheduled carrier on the lucrative New York route. El Al's new owners are making every effort to fend off the challenge from Israir, a low-cost startup modeled after airlines like JetBlue Airways.

After years of losses, El Al has become one of the most profitable airlines in the world. That's thanks to smart cost-cutting and a resurgence in tourism to Israel, now that the decades-long violent strife between Israelis and Palestinians has been calming down.

On Nov. 23, El Al reported a $52 million net profit on revenues of $486 million for the third quarter, its best quarterly performance ever. Industry analysts are predicting it will earn $75 million on revenues of $1.6 billion for the year. The sharp rise in jet fuel prices has been more than offset by higher fares and an 18% increase in passenger traffic.

Those strong results are no small feat for an airline that never flies on Saturdays, the Jewish Sabbath, nor on any of the major Jewish holidays. Then there's the huge cost of El Al's famously rigorous security measures, which include heavily reinforced cargo holds, security guards on every flight, and, soon, anti-ground-to-air-missile devices on every plane.

Now, however, El Al is about to confront what may be its biggest financial challenge of all. After operating weekly charter flights between New York and Tel Aviv, Israir is requesting government permission to launch daily scheduled service to New York. If the government agrees, El Al for the first time would encounter competition from another Israeli carrier on the Tel Aviv-New York route.

Industry insiders think the government is leaning toward Isair. That has El Al crying foul. The carrier is locked in battle with the Tourism Ministry, which is pushing for further liberalization of the market, in order to lower airfares and bring in a million more tourists in 2006. A government decision is expected in the next few weeks...