Competition blurs top El Al profits

El Al Airlines Ltd. said Thursday it earned record profits in 2005.

el al plane 298.88 (photo credit: Ariel Jerozolimski [file])
el al plane 298.88
(photo credit: Ariel Jerozolimski [file])
El Al Airlines Ltd. said Thursday it earned record profits in 2005 just as it gears up for fierce competition from foreign airlines that plan to increase their seat capacity by 20 percent this summer. "We are not scared of competition. We welcome competition but what we demand are conditions of fair competition," said El Al Chairman Prof. Izzy Borovich. "What we mean is that we want to receive the same benefits, for example in Europe, that foreign airlines get here." Borovich was referring, for example, to the airline's secluded and difficult check-in facilities in Frankfurt. However, industry experts pointed to the fact that Lufthansa and El Al both had identical check-in facilities at the main airport in Germany. Those facilities are requested by the Israeli Transportation Ministry for security reasons. Borovich noted that El Al also had an additional burden of $50 million in security expenses, which other airlines did not have. Borovich's comments come after the Bank of Israel, this week, said that in Israel competition was insufficient due to El Al's dominance of the airline industry. The central bank called for a second Israeli airline to be given designated carrier status, just a 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. Foreign airlines have increased the number of seats available on their flights this summer by 20% over 2005 levels. This week, Delta Airlines inaugurated its new route from Tel Aviv to Atlanta as part of its new spring and summer schedule. Also, Lufthansa has started increased service to Frankfurt, using the world's longest airplane, the Airbus 340-600. The new plane will increase the number of seats available to Germany by some 17%-20%. As a result, Lufthansa will operate 14 weekly flights to Frankfurt. El Al has just started flying directly to Miami twice a week and it expects heavy demand on the route. The airline on Thursday reported record revenue of $1.62 billion for 2005, up 17% from $1.38b. in 2004, fueled by a 12% increase in Ben-Gurion Airport passenger traffic in 2005 and an increase in average income per kilometer per passenger, as well as increased efficiencies of services and additions of flights and seat capacity. For 2005, El Al maintained a market share of 43%. Net income rose 94% to $64.1m. from $33.1m. in 2004. For the fourth quarter, El Al posted a net profit of $600,000 against a loss of $25.9m. in the corresponding quarter in 2004. The company said in its annual report that the global aviation sector would continue to suffer from high oil prices and the entry of low-cost airlines in 2006. El Al noted that fuel costs in 2005 were 44% higher than 2004, which represented about 24% of turnover compared with 20% in 2004, and contributed $129m. to the company's expenses. Because of increased jet fuel prices, El Al will raise its ticket prices by an average of 3% beginning April 3. El Al also noted that CEO Haim Romano was paid a salary of $2.4m. for 2005.