The Travel Adviser: American Airlines quits Tel Aviv

"When I received this email my assumption was it was an April Fools joke or a Purim spiel."

By
September 6, 2015 03:38
American Airlines

An American Airlines plane in flight. (photo credit: REUTERS)

American Airlines (AA) is the world’s largest airline, estimated by the numbers of passengers flown, fleet size and revenue.

Their advertising slogan proudly touts: “We know why you fly. We’re American Airlines.”

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Suffice to say there are maybe a dozen people in the entire world who can answer the riddle, why doesn’t AA want to fly to Tel Aviv? Let’s start with the bombshell that rocked the airline industry in Israel as well as the City of Brotherly Love, Philadelphia who has been enjoying six years of nonstop flights between their city and Tel Aviv.

Salutations,

Beginning January 2016, American, and by extension US Airways, will no longer operate daily nonstop service between Philadelphia (PHL) and Tel Aviv (TLV).

Key Facts:

• The last eastbound departure will be January 4, 2016, and the last westbound departure will be January 5, 2016.



• If customers are ticketed on this route after the intended cancellation date, we will contact them to make alternative travel arrangements, or to offer a full refund.

• Customers can still access TLV through our joint business partner British Airways via London or through our codeshare relationship with El Al via our European gateways such as London, Paris, Madrid and Frankfurt.

• PHL remains important to our overall network and is a prime hub for connecting customers to and from main business and leisure destinations throughout Europe and it will continue to be an important strategic hub for our partners through the Atlantic Joint Business.

Sincerely,
AA Sales team


In full candor, when I received this email my assumption was it was an April Fools joke or a Purim spiel.

Glancing at my calendar it become clear that with no rhyme or reason, AA had decided to cease one of the most profitable routes that US Air flew between Europe??? and the United States.

A history lesson is required. American Airlines was created back in 1930 through an amalgamation of dozens of regional US air carriers. In fact its record is one of mergers throughout her storied history. The last dramatic merger was back in 2001 when it gobbled up TWA and overnight ceased flying from JFK to Tel Aviv.

On March 29 of that year, under threat of TWA workers in Israel seizing the aircraft, the plane never departed JFK airport to Israel.

American listed the issue of severance pay obligations among its considerations in quitting the flights to Israel. A statement from AMR, parent company of American, said that if the airlines continued the TWA route and later decided to discontinue it, “American might be expected to take on TWA’s obligations to pay severance to its employees, who could total as much as $9 million to $18m. Combined with the other market factors, this presented an unacceptable financial risk for the airline.”

TWA employees in Israel tried to suggest that AA may have had a hidden motive and the situation evokes the then Arab boycott of Israel. AA stated unequivocally that it intended to “suspend” the daily TWA flights to Tel Aviv because it had “concluded it does not make economic sense to continue the route at this time.” American listed the issue of severance pay obligations among its considerations in quitting the flights to Israel.

AA’s obligations to the TWA workers took over a decade to wind its way through the Israeli courts until the sides amicably resolved the issue and the Israeli workers received their compensation.

Fast forward 12 years and American Airlines, deep in Chapter 11 bankruptcy in the United States is approached by US Airways to merge their operations.

Led by the charismatic Doug Parker, AA management agrees to the merger and after a quick market survey, it’s decided that the newly merged company would go by American Airlines. The entire structure, from aircraft to reservations systems, to frequent flier programs to routes of the two airlines were studied exhaustedly and come October 17, the name of US Airways will join those other fabled airlines such as Continental and Northwest and live on only in the history books.

In our small corner of the world there were two representatives of the airlines. US Airways had their own office, while American Airlines was represented in Israel by a General Sales Agent, Tal Aviation. After a frenzied pitch by both offices, it was decided that the US Air office would take over the AA operations. The missive sent out by AA headquarters that they were ceasing operations in Israel come early January of next year, shocked the AA Israeli office to the core.

Here’s the problem – the real reason why AA made this decision has not been explained. Their tepid statement that US Airways had lost $20m. in each of the previous five years is a bald-faced lie. Having attended each year their annual luncheon where senior US Airways executives would extol that the Philly-Tel Aviv was one of their most profitable routes in all of Europe.

So why release the following statement that US Air executives had vehemently denied being truthful: “Although the route has been a source of pride for American since 2009, the route has operated yearround for six years and has yet to turn a profit,” according to a statement from the company. “The fact of the matter is that PHL-TLV has not performed well since its inception. We lost more than $20m. in the past year alone, and that was after repeated annual losses. The sole reason we are canceling this route is because of poor financial results.”

Sadly most of the journalists have been trying to float a variety of reasons for their cancellation so let’s first pop those trial balloons. In fact one of the most responsible groups, the Zionist Organization of America, picking up on poorly researched articles sent a letter to the CEO of American Airlines, quoting unnamed industry officials suggesting that AA’s decision was political, based on its ties to the Arab airlines in the One World Global Alliance. The letter goes on to state, that Arab carriers, such as Qatar Airways and Royal Jordanian, are part of this alliance.

Not to criticize their good intentions, but several members of the One World alliance fly to Tel Aviv. British Airways, Iberia, Air Berlin and surprise, surprise, Royal Jordanian have been flying to Tel Aviv for decades. So trying to link AA’s decision to cease flights to some boycott is foolish.

Rule out as well the charge of anti-Semitism or playing into the hands of the Boycott, Divestment and Sanctions movement. American Airlines has been selling tickets in Israel for over 20 years with passengers flying first to Europe using El Al and most European airlines and then flying to North American on AA aircraft.

In fact one of the concerns in the Israeli industry is who will AA chose to be their representative in Israel since letters of termination were given to the AA office staff in Tel Aviv.

Several reputable publications mentioned AA decision as acquiescing to requests from Qatar Airlines to cease the flights. Industry officials chuckled at those theories as Qatar owns 10 percent of British Air and Iberia and would have a far easier time of influencing those airlines if that’s what they actually wanted. Coupled with the fact that Qatar permits Israeli passport holders to transit Doha, reinforces the absurdness of that theory.

Profitability also wasn’t a problem. The past year hasn’t been easy for the airline industry in general, but that’s far from saying that the route wasn’t profitable.

No one would have operated a money-losing route for so many years.

Could it have been future profits that are behind AA’s decision? American has been undergoing a ton of international growth the past several years. Prior to the merger they were strong in Latin America, but pretty weak in most other international markets. They were way behind Delta and United when it came to their Asia route network, and were also lagging when it came to their Europe destinations.

But American has been working on growing their international network considerably, in particular to Asia. Just the past couple of years they’ve added additional flights to Beijing, Seoul, Hong Kong and Shanghai, and as of later this year, even Sydney. Going forward, apparently we’ll see more international growth out of Los Angeles. American has claimed most of these routes aren’t profitable yet, but they’re a longterm investment in American’s route network, as it can take a while for demand to ramp up in a new market.

American Airlines in 2014 was a dominant carrier in Israel offering very inexpensive tickets using El Al or a European carrier to fly passengers to North America.

However in early January airfares rose dramatically creating overnight a near cessation of sales. Passengers looking for cheap flights had no trouble finding alternative options, ranging from British Airways to Turkish Air. When queried why they made this policy change, AA officials in Tel Aviv stated that they were losing too much money paying those airlines flying their passengers to and from Europe. However when looking at the macroeconomics, AA’s sales in Israel dropped precipitously in 2015 and future earnings do not appear any brighter.

Let me share with you a letter I was asked to write on behalf of the travel industry that was sent to Doug Parker, the CEO of AA: “We find the decision to cease your daily flights between Philadelphia to Tel Aviv come next January both disturbing and duplicitous. For the last five years, US Airways has been professionally run by Ms. Esther Castiel, who has succeeded in marketing US Air as not only a hub to Philadelphia but an entry to dozens of flights within North America. Every year at the annual luncheon in Tel Aviv, US Airways management would proudly state that it was one of their most profitable routes. When we chided them to give us a larger plane or more than one flight a day we were gently rebuffed.

Having to deal with only one airplane US Air has succeeded in making strong inroads against both United Airlines and Delta Airlines who also market their product to the entire North American market.

With the merger of American Airlines, we were salivating that the Joint Venture with British Airways and Iberia would be initiated in Israel and thus increase AA’s market share in Israel and worked closer with the Israel office in formulating plans.

Over the last few months, the entire industry has been working with your office in developing realistic targets for 2015 as well as corporate agreements with the dozens of corporate accounts that exist in Israel.

There have been too many rumors the last few days for your decision; suffice it to say we feel the entire truth has not been made clear. While we very much would like you to reconsider your decision, we of course respect your decision. Our hope was that you would choose to compete with the other US carriers and fly into New York, a market that is large enough to handle another nonstop airline.”

Give AA credit, not an hour later one of Mr. Parker’s assistants, called me on the phone to express her concern over my letter, detailing it was a complicated issue and to trust them to review their decision. Knowing when I’m being hoodwinked I reiterated that the charges of anti-Semitism and capitulation to the Arab boycott did nothing to strengthen their brand and wished her the very best.

Do I know why AA is stopping to fly here definitively? Of course not. However by refuting the supercilious charges raised one is left with the simple truth. AA simply has neither the desire, nor interest in flying to Israel once a day when they have far greater challenges to handle as their merger kicks into full gear. No great conspiracy, no hidden agenda, simply the realization that they are not able to compete in our marketplace.

The author is the CEO of Ziontours Jerusalem. For questions and comments: mark.feldman@ziontours.co.il


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