El Al plane.
(photo credit: Courtesy)
In the words of humor columnist Joel Stein, “There was a word for people who
approached decision making rationally: losers.” In the case of the open sky
agreement between Israel and the European Union, this applies not only to those
who decided, after years of negotiations with the European Union and its member
airlines, to delay the agreement, but to the rest of us as well.
sky agreement, while not the panacea the Israeli Hotel Association would have
you believe, would have opened the Israeli aviation industry to greater
competition. It’s true that in principle such a step could have eventually led
to lower prices (keep in mind that once the agreement was signed it would have
only gradually come into effect over five years), but in practice, things aren’t
Here, in short, are the four basic laws of supply and demand:
1. If demand increases (tens of thousands of European tourists insisting on
coming to Israel) and supply remains unchanged, a shortage occurs, leading to
2. If demand decreases (threat of war, boycotts, higher
hotel rates) and supply remains unchanged, a surplus occurs, leading to lower
3. If demand remains unchanged and supply increases (European
airlines treble their flights to Israel), a surplus occurs, leading to lower
4. If demand remains unchanged and supply decreases, (European
airlines focus on other markets like the Far East) a shortage occurs, leading to
In a competitive market, such as exists today, the unit
price of an airline seat will vary until it settles at an equilibrium set by
consumer demand and the quantity of flights supplied by the airlines. Let’s be
very clear: tripling the number of airplane seats available on flights to Israel
will not result in lower prices. This is because airlines use sophisticated
computer models to analyze the market before opening up new routes; when a new
route is added, it because there has been an increase in demand. This means that
the supply/demand equilibrium doesn’t change, and thus prices don’t
So don’t be lulled into believing that the open sky agreement
would change the economic model. Listening to Avi Federmann, president of the
Israel Hotel Association, besmirch and bemoan the government’s decision to delay
the implementation, one would assume the sky was falling. Avi, I have a tip for
you to increase your members’ occupancy rate – lower your rates. Israeli hotels
remain in the top tier of room rates worldwide.
More often than not, when
quoting a fare for a tourist, I start off by apologizing for the high rate I’m
about to quote. My excuses run the gamut from holiday surcharges, to high costs
to distribute food to hotels in the Dead Sea and Eilat, the high wages that we
pay for hotel workers and other insipid reasons.
One short-term solution
would be to build more hotels. (Of course this is Israel and nothing is built in
the short term; witness how long it will take to complete the highway expansion
between Tel Aviv and Jerusalem. So we will file this under long-term solution).
Build more hotels and the average room rate will drop dramatically.
you can start marketing even more aggressively to the European tourist
Political pundits have pontificated that the reason for the delay
was to curry favor with the Histadrut, whose workers have been drinking the same
lemonade. They too have been lamenting the agreement, their flames fanned by
false rumors of massive layoffs.
No doubt the Labor Party, led by Shelly
Yacimovich, is quaking in its boots at the prospect of workers deserting in
large numbers and voting for the Likud in the upcoming election. Our prime
minister and his cronies, however, must step back from the political situation
to review what has transpired in the airline industry in Israel.
has successfully entered the market, claiming huge chunks of the British market
with her flights from London and Manchester. She’s picked up thousands of loyal
Swiss passengers flying from Geneva. SAS returned to the Israeli skies last
summer with flights to Copenhagen and will be adding Stockholm to her flight
routes next summer.
Dozens of other European airlines have initiated
routes to Israel in the past two years, primarily due to demand. The marketplace
does work; the open sky agreement will be a boon in promoting Israel.
won’t fill the hotels, nor will it cause the demise of El Al.
along with the other Israeli airlines, Arkia and Israir, are plagued by poor
management and incapable of finding new markets. That Arkia and Israir elected
to not compete on the Tel Aviv-London route, allowing Easy Jet to carve out this
market niche for itself, speaks volumes about their inability to make correct
So stop your procrastination, prime minister. Sign
the agreement. The majority of the players in the tourism industry welcome it.
As in most instances, the reality may not be all that we imagined, but most
definitely it’s a risk worth taking.Mark Feldman is the CEO of Ziontours
Jerusalem. For questions & comments, e-mail him at