El Al's downfall was not coronavirus, it was monopolism

MIDDLE ISRAEL: El Al must survive because Israel needs it strategically no less than its people want it emotionally. However, to fly it must be competitive.

EL AL EMPLOYEES take part in a May protest asking for a recovery plan for the cash-strapped airline, in Jerusalem. (photo credit: RONEN ZVULUN/REUTERS)
EL AL EMPLOYEES take part in a May protest asking for a recovery plan for the cash-strapped airline, in Jerusalem.
(photo credit: RONEN ZVULUN/REUTERS)
“It was wonderful,” ruled finance minister Benjamin Netanyahu hours after El Al’s privatization in June 2003 through an initial public offering at the Tel Aviv Stock Exchange. “All our critics will apologize,” he vowed, and urged all to “wait for the end of the process.”
Seventeen years and eight annual losses later, the end of the process is here.
Having ended 2019 with a $60 million net loss which was then followed by a $140m. net loss for 2020’s first quarter alone, El Al can no longer sustain itself, even after having fired 17% of its workforce, slashed salaries by 20%, and furloughed some 90% of its employees.
Now the Treasury is offering NIS 250m. in loan guarantees for the company, and to buy a prospective $150m. public offering’s shares, should the stocks be under-demanded. In other words, El Al is on the verge of being re-nationalized, and thus coming full circle since its privatization.
That would be a grave mistake.
PRIVATIZATION, WHICH resulted in the company’s purchase by the Borovich family which back then owned Arkia, worked well. The company, which in its last state-owned year lost $30m., moved into the black, reporting over the next three years annual net profits that climbed steadily, from $6.4m. to $33m. and $64m.
The Second Lebanon War and Wall Street’s meltdown in 2008 caused several losing years, only to be offset with a $57m. net profit in 2010. Privatization, in short, initially brought the goods.
Even so, during 2011-2014 El Al again reported three annual losses. A record profit of $107m. in 2015 was followed by steadily shrinking profits over the next half-decade, entering the red in 2018 and then plunging all the way to the floor of the abyss in which El Al is now staring at a $2 billion debt.
Corona obviously made its contribution to the crisis. The near total lockdown at Ben-Gurion Airport resulted in a 65% drop in passengers and a $100m. fall in revenues during March alone, as well as a NIS 1b. debt to passengers in lieu of canceled flights.
Even so, with losses having begun well before the pandemic, the company’s real ailment clearly is not about a virus, but about a state of mind. It’s called monopolism.
MONOPOLISM, WHICH can be loosely defined as the active obstruction of, and mental refusal to engage in, fair competition, has corrupted many aspects of life in Israel, from religion, where Orthodoxy fights non-Orthodox alternatives’ right to compete, to sports, where a basketball club like Maccabi Tel Aviv used to buy local talents and then bench them, so they wouldn’t play for its rivals.
In El Al’s case, the monopoly was built into its business formula before its privatization, and remained fully intact in the years that followed it.
The monopoly was not in the lack of alternative carriers, but in the lack of an airline that would deliver El Al’s singular combination of maximum security, elite piloting, kosher food and Sabbath observance, all of which made millions of Israelis and Diaspora Jews feel at home upon entering an El Al plane.
That is how El Al felt it had a captive audience.
Some thought El Al’s distinctions caused its losses. They didn’t. The company’s added security cost is paid by the government, through an annual NIS 1b. transfer. Kosher meals may be a bit more expensive than others, but food’s part in a flight ticket’s price is small. And as for not flying on Shabbat, El Al’s aircraft do fly on Shabbat, for other companies.
Instead, what debilitated El Al was the unexpected emergence of competition, and its workers’ denialist response to this challenge.
COMPETITION ARRIVED a decade ago, with the government’s “open skies” policy which resulted in low-cost carriers’ mass arrival in Israel. Competition became so fierce that El Al’s share in Ben-Gurion’s overall traffic plummeted from 50% to 25%.
El Al responded by creating its own low-cost company, but the company’s pilots were, and remained, among the world’s highest paid. With a monthly NIS 100,000, El Al’s pilots were earning before the pandemic well more than their colleagues in United, American Airlines, Lufthansa and Air France, according to an Israel Hayom report.
Still, since the privatized El Al retained its monopolistic mindset, attempts to rationalize its salaries were met by belligerent unions that delayed flights at will, reflecting their assumption that the customers are anyhow there, and will always be there, and can therefore be abused with impunity. The customers, alas, ran for the exit doors and abandoned El Al, despite its advantages.
Does this mean that El Al has lost its right to life?
Set aside Middle Israelis’ emotional attachment to the company whose first passenger was Israel’s first president, Chaim Weizmann; and set aside our affinity to the company whose jets flew the emergency weapons shipments that decided the Yom Kippur War; and set aside the pilots who bused here much of Soviet Jewry, and also the magic carpets that carried here hundreds of thousands of Jews from Yemen, Ethiopia, Iran and Iraq.
El Al must survive because Israel needs it strategically no less than its people want it emotionally. However, to fly it must be competitive. And so, if we are to have a national airline we must split El Al into two companies that will offer El Al’s Israeli uniqueness, while competing with each other.
With Israel’s population soon to exceed 10 million, and with the Israel Air Force producing annually scores of world-class pilots, Israeli society will shoulder such a breakup and also benefit from it, provided that this pair is managed with a modern company’s rationality, not a magic carpet’s.
www.MiddleIsrael.net
The writer’s best-selling Mitz’ad Ha’ivelet Hayehudi (The Jewish March of Folly, Yediot Sfarim, 2019), is a revisionist history of the Jewish people’s leadership from antiquity to modernity.



Tags El Al