BOI calls for further airline reforms [pg.17]

Central bank says another Israeli carrier needed to enhance competition.

Joining the Finance and Tourism Ministries, the Bank of Israel on Tuesday called for a second Israeli airline to be given designated carrier status. "There is no doubt that in order to enhance competition there is a need for another Israeli carrier on heavily [travelled] routes, particularly on the route to New York, where El Al's market share is very high," the central bank said in the preliminary release of a chapter from its annual report. "In Israel, competition is insufficient due to the dominance of El Al." Increased competition would lower prices for the Israeli consumer and increase the number of tourists coming into the country, the Bank of Israel noted, adding that "through ticket prices, the extent of competition influences the extent of the market's openness." The central bank's statements come one month after Israir was given designated carrier status on the route to New York, and on the heels of a wave of permits for additional connecting flights. "These are the first steps toward improving competition [in the sector]," the report said. "Improvements in the sector's competitiveness must be continued through additional steps [toward] liberalization, such as opening up to additional foreign and Israeli designated carriers, and ultimately also through liberalization enabling 'low cost' airlines to operate," the Bank of Israel said. "It is almost certain that the positive effect of such steps on the Israeli economy would justify the cost that they may involve." The central bank noted that while Israel maintained the historic policy of bilateral treaties that set "flight rights" and limit the capacity and frequency of flights, other countries have carried out reforms liberalizing the sector over the past few decades. Specifically, the central bank pointed to the "gradual liberalization" of aviation in the US (through bilateral agreements that omit limitations on capacity, frequency and the number of designated carriers per route) and the "open sky" policy adopted by the EU for application among member states and their carriers. Leading routes abroad not involving Israel are operated by a higher relative number of scheduled carriers than routes involving Israel, the bank said. While the Tel Aviv-New York route counted only two scheduled carriers before the addition of Israir (El Al and Continental) for one million passengers, New York-Paris counts an average 300,000 passengers per carrier, Toronto-Chicago 200,000 and Paris-Chicago 125,000. The Bank of Israel's pro-"open sky" position was voiced on the same day as the start of the airline industry's summer season, when permits given in the last month to 10 foreign carriers to increase their operations in Israel take effect, noted an executive employee of one of the foreign airlines serving Israel. "A year ago the [Bank of Israel] could have come out with a statement supporting these policies. Now they're already starting to take effect. Where were they last year?" the executive commented. The new batch of permits would lead to a 20 percent expansion of capacity in and out of Tel Aviv, he said.