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Faced with a sharp decline in tourism, a weaker dollar, higher fuel prices over the past year and increased competition, El Al is working feverishly to avoid the crisis stage experienced by US airlines in recent years.
"It needs to apply efficiency measures and renegotiate every contract," a source close to the company told The Jerusalem Post. "El Al has not reached a stage of crisis management but wants to avoid being in Chapter 11."
Unlike American carriers, which undertook the negotiation process after filing for bankruptcy, El Al hopes talks will deter a crisis situation.
The company said this week it has entered negotiations with the El Al workers union and the Histadrut Labor Union as it plans to cut approximately 10% of its work force.
Yossi Levy, head of the El Al workers union, told the Post the parties are talking about 400 part time workers and around 250 of its permanent staff. El Al has 6,300 workers, of which 2,000 are temporary.
"El Al will do what is necessary to improve efficiency and be profitable without affecting its high level of service we bring to our customers," the airline's Chief Executive Officer Haim Romano told the Post in response. "We will continue to invest in new technologies, develop new routes and destinations and look very carefully at our cost structure so that we can increase revenue by adding value for our customers."
The negotiations come a week after Romano announced a major management restructure that saw seven positions eliminated.
Management, meanwhile, has said it is leaving no stone unturned and is looking at every avenue to cut costs, including ongoing negotiations with the Government to shoulder some of the airline's continuing security burden.
El Al also approached the government after the war to claim compensation for the millions of dollars of additional security costs it endured during the month-long conflict but "was refused almost immediately," the source said.
The war, the source claims, cost the company $70 million in loss of revenues from the lack of tourist and Israeli bookings which resulted. Press reports previously have put the loss of revenue figure at $30m.
The number of tourist arrivals dropped 36% in September this year compared to last as fewer than 100,000 visitors arrived, the Central Bureau of Statistics reported this week. The growth in tourism for the year has slowed from 27% in the first six months to just 1% for the nine-month period by the end of September.
In addition to breaking out in the middle of the peak July-August tourist season, the war could not have come at a worse time for El Al, which already was facing 20% more competition from foreign airlines in overall capacities this summer, rising fuel costs and a weakening dollar.
The weaker dollar added $7m. to expenses in the second quarter this year, and having depreciated from NIS 4.48 at the end of June to its current level of NIS 4.28, is expected to be reflected even more strongly in the company's third-quarter earnings when they are released towards the end of November.
"A weak dollar is bad for a company like El Al which reports in dollars but many of its expenses are in shekels," said Yuval Zehira, senior analyst at IBI Investments. "For example, its reserves for workers compensation are in shekels but reported in dollars so as the local currency remains strong, this provision grows."
El Al posted a NIS 126m. loss in the first half of the year.
As part of its recovery process, the company is also reworking its scheduling and El Al, focusing its attention on North America and the Far East as its growth markets. It has added flights to its winter schedule in both directions and also was expected to drop non-profitable routes including Cairo and Cyprus.
The company's winter schedule will include additional night flights to Miami, Chicago, Toronto, Los Angeles and New York as well as to Bangkok, Beijing and Hong Kong to suit business passengers' needs. It also launched special "El Al Weekend" packages for Israeli travelers this winter.
Yet, despite these plans for Israelis the airline also must see a turnaround in foreign travelers if it has hopes for a recovery.
"The war came in the middle of the high season and affected both incoming and outgoing traffic," the source said.
"We are still suffering because of it. Israeli bookings have returned but the tourists have not come back yet."
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