It’s fair to say I’m a numbers geek. I’m quite cognizant that Kobe Bryant’s five NBA championship rings pale in comparison to Bill Russell’s 11 rings. I know that Vlad the Impaler – Mr. Guerrero, that is, not Mr. Putin – holds the top batting average at .319 of any Angel baseball player, but am fervently hoping that Mike Trout will break that record this season.
So when press releases tout travel statistics of record visitors and massive profits, I take the time to peruse the figures, as the picture they paint is not always opaque. Let’s first look in the past, before contemplating the future.
In the US, the figures are reported from a bureau at the Department of Transportation. They have released the figures that US scheduled passenger airlines reported an after tax net profit of $13.5 billion in 2016, sharply down from the nearly $25 billion earned in 2015. But there’s no need to cry for the drop in profits, as these 25 scheduled airlines are on a seven-year winning streak.
El Al saw its full-year net profit drop by more than 24% to a respectful $81 million. El Al’s results were affected by the pilot’s crisis that reached its peak in the fourth quarter of the year.
In the US, those scheduled airlines earned less than 75% of their revenue from fares. That figure, to be exact, 74.5%, needs to be restated, as the bulk of the remainder earned by airlines is paid directly from your pocket into their coffers. You already are aware of the fees for checking in a bag, or for making a change on your ticket. Other fees, such as revenue from seating assignments and on-board sales of food, beverages, pillows, blankets and entertainment all add to the airlines’ bottom line.
Here’s a sucker bet… those figures will increase in 2017. Coupled with the price of fuel going down, airlines in every corner of the world are coming up with new and innovative ways to relieve you of your hard-earned cash.
In Europe, the merger of British Airways and Iberia resulted in the bland, non-descriptive name of the holding company: International Airline Group. Europe’s largest airline group, IAG reported that in 2016 operating profit hit the €2.5 billion mark and that higher profits are expected this year. In keeping with its lackluster name, it also announced the creation of their own in-house low cost carrier to compete with the likes of EasyJet, Ryan Air and Norwegian Air Lines, nipping hard at their heels. Level was the name chosen after what one would assume was an exhaustive search.
Level is a Spanish long-haul low-cost virtual airline established by IAG. Based at the Barcelona Airport, it will initially operate two Airbus A330 aircraft flying to four destinations in North and South America. Expected to start up next month, Level was established by IAG in response to increased competition in the long-haul market from low-cost airlines. Barcelona was chosen as the airline’s first base, as it will allow passengers to connect to a range of European destinations with Vueling, IAG’s short-haul low-cost airline, which is also based at that airport. Here’s hoping they level out their competition.
El Al, while continuing to focus on her low-cost carrier, UP, has finally released two exciting announcements in the market where they make the most money: the US. Hoping their labor problems are behind them, they are optimistically looking forward to later this year when their newest aircraft, the Boeing 787, Dreamliner touches down in Ben Gurion Airport.
El Al originally planned to start flying to Hong Kong, but Cathay Pacific’s entry into the Israeli marketplace last month forced a change in El Al’s strategy. So El Al looked out west, seriously considering the US West Coast. With her nonstop flight to Los Angeles, El Al was hoping to put the Dreamliner’s first Israeli route in direct competition with United Airlines’ Dreamliner to San Francisco, which has daily flights and has been carving up all of the competition the last few months.
Alas, with Hong Kong put on hold and LA deemed less critical, the denizens of New Jersey are the lucky beneficiaries. El Al will inaugurate this beacon of hope on her daily flights to Newark. El Al will be shaking up the industry even more as the layout on this plane will have three distinct compartments: Business/ First, Premium Economy and Economy Class.
Top-tier frequent fliers of El Al’s Matmid club who have enjoyed sitting in those economy comfort seats on all El Al planes for free, will be agitated to discover that their status in the club affords no special privilege on the Dreamliner. Like all other customers, if you want to sit there you’ll need to pay, or use your accrued points to upgrade your ticket from Economy class into Premium Economy Class.
If you desire to be bumped up to Business/First using points or money, you’ll first need to buy a Premium Economy Class ticket. While details are sketchy on what El Al’s Premium Economy class will look like, one need only review the success of Air Canada and BA who offer a similar product. Most likely, it will only be three to four rows with much larger seats than in regular economy class. It may permit a second checked bag and the meals may also be upgraded.
Boeing requires that each country’s first Dreamliner be tested for one month and El Al has opted to designate London and Paris as her trial cities. Expect those flights to commence in late summer.
El Al has only two competitors that fly nonstop from Tel Aviv into JFK or Newark: United Airlines and Delta. Both, however, offer a different product in their Economy Plus section. Like El Al’s flights to JFK, the seats are identical to economy class. The meals proffered and the baggage restrictions are identical as well. The only difference is a whopping 8 centimeters extra between the rows of seats, making it easier to get out of one’s seat and to avoid the seat in front of you resting dangerously close to your food tray.
Those seats are offered for free to top-tier frequent fliers of Delta; El Al and United and can be paid separately for those not eligible. With prices ranging from $150 to $230 per flight, it’s been a successful way to increase revenue. We can assume that El Al’s price for its premium economy class on the Dreamliner will be at least $700 more than an economy class ticket, which is still $1,000 less than a business class seat. I see a huge demand for this product and will not be surprised to see Delta & United Airlines scrambling to update their equipment.
The other spring announcement by El Al was that come November she would be adding her fourth nonstop flight to the United States: Miami. Returning to the Sunshine State after more than a 10-year absence is an indication that a thrice-weekly route will be a productive route. Time will tell if the marketing of the line will prove successful.
It was the Israeli Transport Minister, Yisrael Katz who called the Open Sky agreements he introduced the most important consumer revolution for the Israel public. The fact that there are now 140 airlines operating out of Ben Gurion Airport, despite the small size of the airport, has seen large price decreases and can rightfully be called the consumer development of the decade. The result is that Israelis are flying more. Passenger traffic grew 11% and burst through the 17-million barrier in 2016. The frequency of flights also vastly increased.
For leisure travelers, many consumers have also changed their buying habits. First, the Internet has led to more engaged customers able to research price comparisons.
Second, a vacation destination is frequently selected according to the price or flight dates, rather than constituting the essential element. One simply decides they want to get away, and make their decision on price and availability rather than a desired destination. Israelis have discovered such off-the-beatentrack destinations such as Batumi in Georgia or the Turkish Republic of Northern Cyprus only because their prices are so much lower than Rome or Athens.
Third, the use of flights through intermediate destinations has increased, because they are cheaper. One of the reasons that the two largest airlines in Turkey, Pegasus Airlines and Turkish Airlines are so popular with Israelis flying to Europe is their low airfares. The flying time may be longer with the switch of planes in Istanbul, but the savings are too large to dismiss.
Finally, advance vacation planning has become more and more prevalent, especially due to the multiplying of low-cost airlines offering lower prices for ordering a vacation long in advance.
A recent survey conducted on behalf of Leumi Card shows other interesting nuggets. Israelis ordering online prefer vacations out of Israel. In its monitoring of online deals, Leumi Card found that the Booking.com website was the favorite for Israeli tourists, with a 193% increase in the number of orders in 2016, compared with 2015. Unfortunately the Israeli sites were shunned by most Israelis, perhaps because their mark-ups exceeded the international sites’ rates for similar properties. I often recommend to clients that in addition to checking out the previously mentioned sites, once you’ve made your hotel selection, go directly to the hotel’s site or phone them directly to see if you can obtain a lower rate.
They also found out that Israelis have no problem shying away from hotels. The Airbnb site for ordering apartments overseas showed a healthy increase in business, as did hotels.com and Expedia.
The survey also shows that Israelis separate the elements of vacation packages. 48% of overseas vacationers prefer ordering every element of a vacation separately in order to secure for themselves a worthwhile package.
Another figure indicates that Israelis have become smarter consumers: 64% of overseas travelers said that they regularly compared prices before ordering a vacation while the majority still chose to use an Israeli travel agency when making their purchases, preferring to have the guarantee of having the protection from any surprises they may encounter.
Absent any summer surprises, 2017 will see another profitable year for the world’s airlines and a more level playing field for the consumer. In the word of Yogi Berra: “It’s like déjà vu all over again.”The writer is the CEO of Ziontours, Jerusalem. For questions and comments email him at mark.feldman@ ziontours.co.il