Paraphrasing from one of Kevin Costner’s best films ever, the voice reverberated in El Al’s headquarters, “If you build it, they will come.” To wit the major announcement recently that El Al announced the largest ever purchase program for new aircraft in the company’s history.
CEO David Maimon said “El Al’s board today authorized the company to hold talks with Boeing over the acquisition of wide-body Dreamliner aircraft for the purchase and lease of 15 planes in the next five years.”
El AL said that the planes will replace its current Boeing 747-400 and 767 fleet over the next five years for medium to long haul flights to JFK, Newark, Boston, Toronto, Bangkok, Mumbai, Johannesburg and more.
The cost of the planes is estimated at $800 million-$900m. In addition to this purchase or lease, El Al would pay Boeing more than $1 billion as they took an option to purchase 13 other aircraft from Boeing. The airline further announced that delivery of the new fuel efficient 787-900 series would begin in the first half of 2017 through few journalists noted the word that this announcement merely said they were commencing talks and nobody queried management where El Al was going to come up with nearly a billion dollars to purchase or lease the aircraft. Leaving aside that conundrum I invite you to delve with me in how El Al could look in 2020.
US President Donald Trump and the first Jewish Vice President Sheldon Adelson are deep in the campaign mode for their reelection to the White House. Their first term was characterized by a weak US economy as trading partners from Mexico to China were constantly rebuffed by their bombastic comments.
Relations with Israel though were never better and one of the last private sector purchases Vice President Adelson completed before being sworn in was purchasing and quickly building a 250-unit four-star hotel at Ben-Gurion Airport. Filled to near capacity by foreign crews on their Israeli turnarounds as well as Israeli flyers from throughout Israel who welcomed the ability to spend their pre-flight evening at the hotel prior to their early morning flight, it filled a void that travelers had been clamoring for.
El Al in 2020 was a much leaner, younger company both in the age of its fleet and in its personnel. Realizing the only way to compete in a market filled with robust lowcost carriers, senior management spent six months doing something they had never previously done – researching the competition.
From Ryan Air to Southwest, to Turkish Air and Emirates, management decided they their way had failed and took copious notes on how to rebuild and rebrand El Al. Their final report, parts of it being made public for the first time highlighted the following:
Low cost airlines versus full service airlines
Short-haul journeys can often be made on two types of airlines: full service carriers or low-cost carriers. The full service carriers, such as Delta Airlines provide a reliable, professional and comfortable service with staff that does actually care about their customers. Low-cost carriers, on the other hand, sacrifice much of this in order to provide you with a cheaper flight. Is it worth paying for the extra service?
On the one hand legacy and full service is better
• If things go wrong (delays, lost baggage etc.), there is a customer service department that will generally help and compensate you for inconvenience. No frills airlines offer very limited customer services involving either expensive phone lines or impersonal emails (if you’re lucky enough to get a response).
• If a flight gets canceled, full-service airlines can use their alliance partners to help get passengers home. For example, passengers on a canceled United Airlines flight from Newark can be rebooked onto an Air Canada flight via Toronto to get home sooner than the next UA flight. Low-cost carriers do not have partner airlines to do this, if they cancel a flight you could be stranded for days – this DOES happen.
• Your low cost flight quickly becomes more expensive when adding on all of the hidden extras such as checked-in baggage charges, in-flight entertainment, food and drink.
• Low-cost carriers often use airports with cheaper fees that are further from the city center. The extra time and cost to get into the city may not be worth the money saved on the flight. Don’t be fooled by airport names, make sure you know exactly where you’re flying to.
• Low-cost flights are so cheap partly because the airline pays less for airport landing slots that are at unsociable hours (early morning or late evening). Full-service carriers generally operate more frequent flights throughout the day, so you can choose the time that suits you best.
On the other hand low cost is better • Some European flights are so short that sacrificing comfort, in-flight entertainment and food is simply not a big deal.
• No frills airlines do sometimes use the same airport as the full-service carriers – check this by looking for the exact name of the airport or three-letter IATA airport code. For example, both EasyJet flies from London to Tel Aviv from both Luton and Heathrow Airport.
• Low-cost carriers operate the same types of aircraft as the full-service carriers and are subject to the same strict rules on maintenance – safety is certainly not sacrificed.
• Major problems such as cancellations are infrequent enough that for cost-conscious leisure travelers it’s probably worth the small risk of being stranded for a much cheaper flight.
• You should always have travel insurance anyway, that should cover you for the costs of getting home or at least compensate you in the event of a canceled flight – check your policy.
Comparing the costs
Of course, choosing between full-service and low-cost carriers is likely to come down to the complete package of quality, service and price. It’s a trade-off, for example: “Shall I fly EasyJet to Berlin or pay an extra $50 to fly El Al?” – how much the extra service and quality is worth is up to you. But first, make sure you’re comparing apples with apples.
Low-cost carriers have a habit of sneaking up on you with hidden extra charges that you probably didn’t consider when choosing which flight to book.
Here is a list of things that low cost carriers charge for:
• Paying for your flight – ridiculous as it seems, some airlines pass on the credit card fees.
• Checking in – you have to check in, right? Right. Failure to do so online can cost you if done at the airport.
• Checked-in baggage – low cost carriers charge for checking in hold bags, which increases with weight.
• Boarding first – pay to avoid the rush for seats, which contrasts with the civilized pre-allocated seating on full-service carriers.
• Food and drink – onboard prices can be astronomical so either bring your own or choose to fly full service.
• In-flight entertainment – some airlines offer paid-for films and TV; on longer flights this is an important consideration.
• On board amenities – pillows, headphones etc., and Ryanair once raised the question of charging to use the toilet.
In conclusion, we at El Al feel that flying with us is worth paying extra to an extent, but by how much depends on circumstances and personal preferences.
El Al in announcing its five year plan at the end of 2015 had decided to focus on the Three P’s: Product, People and Pricing.
By dramatically lowering the age of its fleet with the 15 Dreamliners they had purchased along with the previously purchased Boeing 737-800’s El Al finally had the product she had dreamed of. Unfortunately this product had one major disadvantage; it had to be kept in the air.
Grounding its entire fleet 25 hours every week and on all Jewish holidays was a luxury that the privately owned airline could no longer afford. Months of negotiations with Orthodox representatives led El AL in 2017 to begin flying seven days a week. Observant workers at El Al were reassured that their values were an integral part of their employment and given the opportunity to work only from Sundays to Thursday. The boycott that Netorei Karta members organized fizzled out when even their most strident followers realized that while El Al must imbibe Jewish values, every one of her competitors was flying 24/7.
It was also in 2017 that El AL realized that their UP experiment while profitable in the short term weakened their brand and by merging with Arkia, they created a dynamic low cost carrier. With far less labor costs holding them down, their low cost carrier dominated the short haul flights to Europe, creating strong competition to both Ryanair and EasyJet who had a near monopoly on the skies over Israel at one time.
Controlling their costs and with the price of oil remaining for over a decade under $100, left El Al shareholders gleeful that El Al realized they couldn’t be both low cost and full service at the same time.
With the arrival of the first Dreamliner back in 2017, El Al redesigned the way the aircraft looked. Divided into three distinct cabins of economy, economy comfort and business class, it had found a niche for the vast majority of its clients.
Economy comfort is that hybrid that passengers and airlines have great difficult defining.
The US model, applied by American, Delta and United offer for under $200 the ability to sit in the same seat as in economy class, eat the same meal, enjoy the same amount of free checked luggage but enjoy a whopping 8 centimeters, or 5 inches of extra space between the rows of seats. Of course this amount is waived for their top tier frequent flier members or any passenger purchasing a full-fare economy ticket.
The Europeans and Air Canada have gone a different route in their economy plus price. First and foremost it’s a bigger seat, in a separate cabin with both more space between the rows and a greater pitch in each seat. Some carriers offer a separate airport check-in line; all permit one extra checked bag. This difference isn’t cheap; it costs at least an extra $400 to sit there and no matter how many miles you’ve flown or how important you are in their Frequent flier program, if you want to sit there, you pay for it.
When El AL made the switch in 2017, their gold and platinum frequent fliers rebelled, with many jumping ship to United and Delta. Slowly though once they realized the huge difference in economy comfort on El Al’s new planes, they returned.
As noted, personnel was El Al’s next big challenge. Not in the air; El Al’s pilots and air crew had received excellent ratings throughout the years and complaints about surly service had long ago been left in the garbage can. It was the employees on the ground, the tenured staff at its headquarters, content that they couldn’t be fired with little motivation to perform their duties. Along with the money for their huge aircraft purchase, it borrowed heavily to induce over 2,000 employees to take early retirement and began hiring younger people eager to innovate an airline. El Al began hiring at a furious pace.
This new core of employees felt emboldened by the spirit at El Al. They gambled on new concepts and marketing plans realizing that there would be some failures, but they had to keep on trying.
No longer content to sitting on their backside, these employees became leaders in the airline industry with their innovative practices and quick decisions.
Finally the pricing mechanism of El Al was brought up to date. By hiring animated and dynamic software individuals, the airline created algorithms that allowed them to both monitor competitors’ pricing and instantly modify their own prices. When a competing airline had a more flexible fare on a three-day trip to New York, El Al reacted immediately in matching it. Utilizing the huge success of Israeli start-ups, they tapped into them to enhance the business class experience.
Working with travel agents, they fine tuned the demands of their most profitable client, the businessperson.
Need your bag collected at your New York hotel in the morning for your night flight that evening to Tel Aviv? Done.
Internet connectivity had been installed on all the planes at reasonable costs, satisfying all their clients and adding large amounts to El Al’s bottom line. Done.
El Al over the last five years had used the synergy from their Boeing purchase in 2015 to recreate their brand. Focusing on their product, had them referring to all of the features and benefits that their customers can enjoy. As they marketed their product, they emphasized those benefits that were wanted. Successfully using research and development they had a steady stream of new products.
El Al had triumphantly identified how much their customers were prepared to pay, how much to mark-up certain items and to keep a firm hand on costs. To attract customers and retain a competitive advantage, it used discount, seasonal pricing, bonuses in frequent-flyer miles accrued and a second free checked bag at certain times of the year. We live in a land of miracles, a people blessed with an indomitable spirit. Isn’t it time then that El Al lived up to its potential? The author is the CEO of Ziontours Jerusalem.
For questions and comments: mark.