Behind the Headlines: El Al Hopes for a Smooth Landing As the Airline Takes off on Its Own

To Jews around the world, the words “El Al” are synonymous with Jewish pride and Israeli ingenuity. The Israeli airline’s blue and white fleet unabashedly flies the Star Of David on its wings and steadfastly refuses to operate on Shabbat.

But El Al’s days as a government-owned enterprise will soon come to an end.

Determined to promote privatization as a whole, and thereby create a more competitive free-market economy, the Israeli government plans to sell 51 percent of the airline, possible by the end of the year.

“Privatization is one of the most important steps the government can take to improve the country’s financial market,” said Eitan Shapir, director of the Finance Ministry’s privatization department.

“The government has already sold off several large business companies and this has made them more efficient and competitive,” he said. “By getting out of the business sector, the government allows the private sector to determine a company’s real worth.”

During the past decade, the government has gradually sold off many of its largest institutions — with good results.

Some companies, such as the Israel Shipyard, were losing millions of dollars and the government was able to cut its losses. Others, such as Israel Chemicals, were sold at a profit.

Just how going private will affect El A1 is far from certain. In 1994, as a government-owned company, the airline scored a healthy $14 million in profits on more than $1 billion in revenues, according to official figures.

This year’s profits are expected to total between $10 million and $14 million, with $1.5 billion in revenues.

During the past five years, in a bid to become more competitive with other airlines, the national carrier has expanded its operations and improved its services.

According to El Al spokesman Nachman Kleinman, the airline flew to fewer than 40 destinations in 1990. This year, the company expects to fly about 2.6 million passengers to 51 destinations.

In possibly its smartest move yet, El Al entered the Far East, the fastest growing airline market, in December 1992, with weekly flights to Beijing. It also expanded service to Hong Kong; New Delhi; Bombay, India; Bangkok, Thailand; and Seoul, South Korea. A much-awaited link to Japan will get under way as soon as the Japanese government approves the venture.

Other factors have also played a role in El Al’s recent success. One is the company’s realization that it cannot take its customers for granted. Recent fare wars have proved that price, not security, is the bottom line for many passengers.

Another key factor is Israeli wanderlust. Kleinman pointed out that at least 1.5 million Israelis will travel overseas this year.

“Not many countries can claim that one-quarter of their citizens go abroad every year,” he said.

During the past few years, “Israelis who never went abroad started going to Turkey and other nearby destinations on inexpensive package deals,” he said. “Now they are experimenting with other, more far-flung destinations like Europe and the U.S.”

And even though young, post-army-age Israelis are world-renowned travelers, with a special fondness for the Far East, many older Israelis are also now experimenting with visits to Thailand or India.

Kleinman said the peace process has not yet contributed to El Al’s growth. However, he also said, “We do anticipate a lot more traffic once Israel signs a peace agreement with Syria or Saudi Arabia.”

Such an agreement “will give a major push to travelers, particularly Americans, who were afraid to come earlier,” he said, adding, “It will also open up the market for travelers interested in seeing more than one country in the Middle East.”

In addition to passenger travel, El Al operates a successful cargo service, which accounted for 25 percent of the company’s revenues last year. The company handles 60 percent of all cargo traffic at Ben-Gurion Airport.

Although the company is flying high at the moment, with market growth between 5 percent between Israel and the United States and 12 percent between Israel and the Far East, increased competition could put a big bite into investors’ pockets.

Any potential buyer must weight El Al’s standing vis-a-vis other airlines.

According to a recent report in the Israeli business monthly Link Magazine, increased competition from other carriers has dropped the company’s share of the Israeli market from about 50 percent in the early 1990s to 41 percent today.

The piece of the pie could even get slimmer now that World Airways, a U.S. carrier, and Air Canada recently launched service to Israel.

The magazine also said that even though El Al now “enjoys a monopoly on direct fights out of Israel to the Far East,” once the anticipated flights of Thai Airways, Air India and Korean Airlines begin, profits may go to the competition.

The “Shabbat issues” is another concern. Although no one at El Al would dare say to publicly, its Shabbat no-fly policy is costing the airline customers.

It is not clear how privatization will affect the policy. A couple of months ago, when local newspaper reported rumors that El Al was prepared to fly on Shabbat as means of attracting investors and customers, the government quickly denied the reports.

When asked about the future, Joseph Ciechanover, El Al’s chairman of the board of directors, said that for now, El Al could not fly on Shabbat because that is the government’s decision.

But, he added, “I don’t know what will happen in the future.”

Despite such challenges, many travel industry insiders believe that privatization will be good for El Al — and ultimately its customers.

“Once in the private sector, El Al will really be forced to compete with other carriers,” said a Tel Aviv travel agent who asked not to be named.

“Competition tends to be a good thing for business.”

Whether all 51 percent of the airline’s shares will be floated simultaneously on the Israeli and world stock exchanges is still under discussion.

In April, a government ministerial committee decided to postpone privatization for six months, in part to give the volatile Israeli stock market some time to calm down.

“We are discussing all our options, including whether to accept tenders,” said a Finance Ministry official. “But there is a big difference between discussion and decision.”