A sustainable, believable political settlement between Israel and the Arab world is the biggest impediment stopping Israel from becoming a major air hub, Air Canada CEO Calin Rovinescu told The Jerusalem Post on Monday.
“There’s no question that if there were a political change perceived to be sustainable – and it would be a big challenge to know whether it would be successful, even if there was a phenomenal announcement – that Israel could become a more central destination,” he said. “That is the number one impediment. There’s great geography here, no question.”
Though a political settlement could help position Israel as an international connector, Air Canada continued to invest in it as a destination. The international debut of its Boeing 787 Dreamliner fleet is planned for the Toronto-Tel Aviv route starting in July.
The mid-size, fuel efficient plane is said to provide better air quality, giving passengers a more comfortable ride.
“This is a $200 million investment decision,” Rovinescu said. “If any other companies were building plants for $200m. it would be a front page story. We look at the success of the market and longterm prospects for the market when making these decisions.”
Rovinescu, in Israel as part of a delegation led by Canadian Prime Minister Stephen Harper, said that Israel will continue to attract more air traffic as it continues to grow, meaning more potential service to Tel Aviv.
Though Israel’s adoption of the Open Skies agreement with the European Union has helped low-cost carriers establish a stronger foothold in Tel Aviv, Rovinescu said he did not foresee the liberalization harming Air Canada’s business.
“We’re a different market. The low-cost [carrier] market tends to be a shorter-haul market. There have been very few successful long-haul players in the LCC market,” he said.
Competing with mammoth companies in the ever-consolidating industry, however, is a challenge, especially given barriers to international mergers.
Air Canada’s recent scheme for revenue-sharing with United and Lufthansa – approved last year by EU anti-trust regulators – is the closest substitute available.
“It is a de facto merger from a revenue perspective over these markets, and that’s a trend I think you’ll see continue over time,” he said.
The other major challenge facing airlines? Taxes.
Despite paying out billions to suppliers of all sorts, he said, airlines survive on razor-thin margins in part because they are so heavily taxed by governments.
“The aviation charges are not recycled back into the aviation industry. If they were you could begin to justify it,” he said.
The trend is worse, he argued, in the developed world than among some emerging markets, which see airline service as a driver of growth and offer incentives accordingly.