Analysis of a strike – who won and who lost?

The strike by those three Israeli airlines was ludicrous at best and litigious at worse.

May 5, 2013 01:24
Airport passengers waiting for flight

Elal passengers sleeping 370. (photo credit: NIV ELIS)

Love ‘em or loathe ‘em – that seems to be the consensus after El Al’s two-day strike last month. El Al, Arkia and Israir called the strike over the government’s approval of the Open Skies agreement between airlines inside the European Union.

The strike by those three Israeli airlines was ludicrous at best and litigious at worse.

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For two days we heard the senior management bemoaning the agreement on one hand, yet vociferously stating they weren’t against competition. All they wanted was a level playing field. To say that many farms in the Galilee could have fertilized their fields with the garbage that was being transmitted would be impolite.

Suffice to say, that the real reason for the strike – which could have been averted – was the desire to lower El Al’s participation in her security costs. For the past few years, the Israeli government picked up 80% of the costs associated with security, leaving 20% the responsibility of the airline.

Israeli airlines incur higher costs than any other airline. To simply fly to any destination requires a huge investment by Israeli security services in that foreign city. Be it Mumbai or Los Angeles, Israeli security personnel are at the airport before every flight.

There are plain-clothes agents and fully armed personnel patrolling the premises for explosives, suspicious behavior and other threats. Inside the terminal, passengers and their baggage are checked by a trained team. Aside from the technology that has been developed, which has been generously shared with hundreds of airlines throughout the world, the constant vigilance does not come cheap.

After two days of the strike, forcing more than 4,500 passengers to make alternative plans, the government agreed to raise their participation to 97.5 %. Yes, El Al will now save $33 million per year but what have they lost? The strike ended late Monday night, April 22. For two days, thousands of passengers were forced to delay their flights or purchase tickets on other airlines. Stranded in hotels throughout the network that El Al flies, their costs kept ballooning as their frustration at El Al (Arkia and Israir passengers have lower expectations) grew.

Communication on the first day was abominable. The strike commenced at 5 a.m. and those passengers due to fly out early in the morning had their flights brought forward and were able to depart the country.

However, the majority of El Al’s flights are scheduled well after 5 a.m. and only at 5 p.m. did El Al send out instructions to travel professionals what options were available for stranded customers. Their reservations call centers had people on hold for hours and, when reached, the El Al employee could give no guidance on what they should do. Frenzied clients threatened to sue their travel agency, the airline and the entire Histadrut. Rival airlines fattened up on the absence of El Al.

Old timers recalled that the last El Al strike lasted over a month. Panic started to seep in as future bookings for this spring and summer were quickly shifted to other airlines. On the second day, communication was a little better; El Al management finally agreed to endorse tickets over to foreign airlines for stranded passengers. While their intention was good, the reality was that by this stage those airlines were already full with their own passengers and those clients who chose not to wait for any largesse from El Al.

The genius, though, of El Al’s CEO, Eliezer Shkedi, was to get the airport workers to threaten an airport strike at Ben-Gurion Airport, effectively shutting down all flights in and out of Israel. The government, already not objecting to increase their participation in the security costs, added that extra 17% and the three striking Israeli airlines folded immediately. The strike ended and the damage control began.

Full page ads appeared in the Israeli newspapers the next day.

“SORRY!” they shouted out. “Dear Customers, Thank you for your understanding and patience during these difficult days.

We are giving ANYONE whose flight was canceled a voucher for a BONUS TICKET to one of our European Destinations.”

Thus if your flight was canceled on either that Sunday or Monday anywhere that El Al flew (or didn’t fly in this case) you could get a bonus ticket. It’s very important to read the fine print. First and foremost you must request it by phone; they will not send it to your email or your travel consultants automatically.

This would have been the fairest way – only El Al has the complete list of their passengers; all have an email contact be it theirs or their travel consultant.

So El Al knows not everyone damaged will make the call. Not bad but their next provision is virtuoso: You cannot make the call yet – yes it’s been two weeks but El Al asks you to wait a bit longer. You can only call after May 12, almost three weeks from when the strike ended. Rarely have I seen such an ingenious offer for compensation like this put forth.

The voucher is valid until May 31, 2014.

The blackout dates are reasonable, July 15- August 21, September 12-30 and next spring, during Passover, April 2-24. Please be aware that the specific economy class required to get a seat, is no different than that given to frequent fliers.

El Al almost never has more than nine seats on any one plane in this class so aggrieved passengers need to plan well in advance. As El Al pointed out this is a bonus ticket, and taxes and fuel surcharge will be well over $100 to most of the cities that El Al services in Europe.

So why did Mr. Shkedi encourage his union to call a strike? How much of that $33 million saved in security cost will be spent on these bonus vouchers? Professionally, I can report that the longterm financial damage to El Al is minimal.

Passengers tend to vote not with their feet but with their pocketbook. El Al elected to have another spring/summer special which quickly brought clients flocking back. Still, El Al will enjoy less revenue from these reduced prices but with $33m. in savings from their reduced security costs, they have a little wiggle room.

Understanding the crux of El Al’s dilemma requires a quick comparison of two simple items: number of employees and number of planes.

Consider one of El Al’s greatest competitors in Israel – United Airlines with two daily flights. Blessed with 1,258 planes, it employs 88,253 people, which calculates to 70 employees per aircraft. US Air, with 640 planes and 36,500 employees, beats United with a unit cost of only 57 employees.

Turkish Air ups the number to 75 employees per plane, while Swiss comes in at 85.

El Al has only 38 planes in her entire fleet and has a workforce comprised of 6,000 salaried people. In other words, El Al employs almost 158 people per plane. This number must be repeated. For each plane in operation, 158 are required. This includes sales and marketing, pilots and flight attendants, mechanics and security staff and of course senior management across the board.

Is it any wonder El AL has been losing money the last year? Is it any wonder that an offer to purchase 48% of El Al for only $75 m. is considered wonderful, with no comments raised at how little the airline is being valued at? The true bottom line to El Al remains foggy at best, and it remains to be seen whether senior management in place at El Al are equipped to handle these challenges.

Mark Feldman is the CEO of Ziontours Jerusalem. For questions and comments, email him at [email protected]

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