Will Israeli airline El Al receive the carrot or the stick?

El Al, like the other Israeli airlines, Israir and Arkia, spent countless hours begging for government assistance from both the Netanyahu and Bennett administrations.

el al plane (photo credit: YOSSI ALONI/FLASH90)
el al plane
(photo credit: YOSSI ALONI/FLASH90)

It has been six months since the present owner of El Al, Kenneth Rozenberg immigrated to Israel. As the CEO of Centers Health Care based in the US, he brought a unique background to El Al, which has been mired like all airlines in the global pandemic, and has a history of labor relations within the company that rivals tin-pot dictatorships once prevalent in South America. He also holds a BA from Yeshiva University in psychology and a Master of Public Health degree from Columbia University. 

No doubt vigilant readers of the news media have seen the countless interviews he’s given. Or perhaps he has chosen to release his thoughts in written form directly to the public which, without their support, El Al cannot exist. Or he limits his illuminations on the evening TV screens. No such luck, I am afraid. Rozenberg, once known for his strong public speaking role, has stayed silent. Other than his family and a handful of El Al executives, nobody is privy to his survival plan for El Al.

He appointed Avigal Soreq as CEO; his 10-year role in leading Delek Holdings had him residing in Nashville, Tennessee the last decade. To be honest, managing large fuel companies has given him a very strong managerial background, and he has been the face and voice of El Al during the last six months, ricocheting from crisis to crisis. The Israel government played hard and fast with El Al; at times offering a carrot if they would take the severe step and make redundant thousands of El Al employees. 

El Al, like the other Israeli airlines, Israir and Arkia, spent countless hours begging for government assistance from both the Netanyahu and Bennett administrations. Soreq agreed almost immediately to lay off almost 1,900 employees, nearly one-third of their staff, as negotiations with the government proceeded. 

Finally in August, the Treasury agreed to give El Al a balloon loan of up to $200 million dollars with no repayment for the first two years. Moreover, they agreed to pay in advance, for 20 years, the cost of El Al’s security expenses. They had been footing the bill for 90% of the security costs, appreciating that El Al’s security needs dwarfed what other airlines dealt with. Along with their largesse, they required Rosenberg to invest millions more, which to his credit he acquiesced. 

Unfortunately, nobody bothered to bring the Histadrut, Israel’s all powerful labor union, into the picture. Callously or capriciously, the Histadrut declared a labor dispute a few days after El Al received the good news, threatening that if any of the Israeli airlines dared to initiate more labor layoffs, a strike would be called. For several weeks El Al battled both internally and externally its twin demons: a workforce cognizant of the massive changes required to keep El Al afloat, and management’s inability to plan for the short- and near-term future.

THE GLOBAL pandemic has decimated airlines. Its effect on tourism is still being felt from Australia to Zimbabwe. Many national airlines did receive government assistance; many had strong management in place who curtailed the frequency of flights and worked with the labor unions. El Al had zero assets in its arsenal. Weak and tepid management, coupled with a silent owner, and a government unsure if letting El Al go bankrupt would benefit the aviation sector in the long term, have left El Al in the lurch. 

Travel experts have espoused for over a decade that El Al’s desire to fly everywhere and compete with both low-cost and full-service airlines has led El Al to bleed money astronomically. Past management simply added new routes with little market research, investing millions in promoting the routes, only to discontinue them months later. Anyone remember El Al’s foray into Las Vegas or into South America? El Al started a low-cost carrier with the same costs of the regular El Al. It hemorrhaged money, and it too was shuttered.

For years, El Al has been advised to cease making partnership agreements with other airlines who later denounce them and focus on their strongest market. North America remains and will continue to be the largest market for both outgoing and incoming travel. Flying to JFK, Newark, Miami, and Los Angeles along with Toronto has been El Al’s bread and butter for decades.

El Al needs to return flights to Boston and Chicago. They must resume flights to San Francisco, and add Washington and Dallas to the mix. If market studies show there is a reason to fly to Montreal, then that city should be added. Adding nonstop flights to more and more cities in North America is the most intelligent decision El Al should be making. Of course, El Al needs to fly to major European cities in the UK, France, Germany, Spain and Italy. 

El Al plane (credit: ERIC GAILLARD/REUTERS)El Al plane (credit: ERIC GAILLARD/REUTERS)

The other cities though should be dropped like a hot stone; with low-cost carriers dominating so many second-tier cities in Europe, it is futile for El Al to try to compete.

El Al must add and enhance flights to the Far East, be it Shanghai and Tokyo, along with their existing flights to Hong Kong and Beijing. Forget about South America or the rest of Asia. 

If ego and politics makes El Al fly to the United Arab Emirates then so be it; it will never be profitable with Fly Dubai, Arkia, Israir, Emirates and Etihad all vying for a piece of the pie.

EXHAUSTED BY El Al’s reluctance to create a five-year plan, to say nothing of a vision for 2022, Treasury officials dropped the other shoe. To obtain the government loan, El Al had to agree to sell more than one-third of their fleet, reducing it from 45 to 29 planes. The reduction will be in the older, gas guzzling aircraft as El Al is forced to cut their routes. In addition, despite the insipid Labor Federation, more layoffs must be made.

One other revenue-producing action was the strong request to sell El Al’s frequent flier program, something many airlines have done. Their database is a gold mine, and hopefully El Al management will achieve a strong return. Many airlines used their clubs to borrow money to see them through the slump in demand for travel during the COVID-19 pandemic. In essence, miles earned by a passenger are sold to credit card companies, who use them as part of their reward programs to their customers.

The revenues earned from selling the miles are far higher than the cost of any flight travel redeemed by passengers. Delta Airlines borrowed $6.5 billion, backed by its SkyMiles loyalty program. United Airlines values its Mileage Plus program at nearly $22 billion dollars, which is more than United Airlines is worth. The carrot that the Israel Treasury offered to El Al was an additional $50 million loan ,as the recovery has taken longer than expected when the first loans were given.

One would like to believe that Rozenberg and Soreq would review this latest proposal and realize the cleverness it contained. One would also like to believe that the Health Ministry has finally come up with a detailed plan that would let all tourists back into the country. And one would be very wrong.

In fact, El Al’s CEO – Major Soreq, who was an air force pilot as well as an accountant – rejected it out of hand, writing back that “El Al demands immediate compensation of $100 million for damage caused to El Al due to decisions by the state.” Wow, impressive rebuttal on several levels. 

First, you have to love the emphasis on immediate compensation, as well as the amount. Hutzpah ,that Israeli trait all Israelis are born with, was not tarnished by his years in Nashville. No southern hospitality in that statement, straight to the throat.

And a nice touch in blaming the state for Israel’s woes. 

Attached to Soreq’s letter to the Finance Ministry was also a letter from Rozenberg committing to work on behalf of El Al. The letter said, “I take full responsibility as part of proper corporate procedure to protect its stability, nurturing and growth, especially during this time. My commitment to El Al is no small matter. El Al is an enterprise that requires major long-term investment.”

Heartwarming words, but my fear is that his definition of long-term investment alludes only to capital. What he needs to invest in is brainpower and a strong management that can see the future and move forward.

It’s a sign of our times that Israir, the most vocal Israeli airline over the last year, is owned by Rami Levy, whose background is in supermarkets before branching out into property development. Israir’s CEO, Uri Sirkis, has been at the forefront of criticizing the government over its topsy-turvy policy when it comes to handling the pandemic in regard to travel and tourism. He has been leading the choir to open the skies; when a new peace treaty is signed, or a country allows Israelis to enter, Israir has quickly added flights. 

El Al meanwhile has stumbled like a drunk person, hitting wall after wall trying to find an open space. I’m not comparing Israir, whose fleet of planes doesn’t reach double digits, to El Al; but I admire the tenacity of Israir’s management to boldly outline its future. Truth be told, Israir’s decision to stop flying on Shabbat will come back to haunt them, but again it’s their owner who has decided on this policy and has the wherewithal to make it happen.

IS EL AL going to follow in Beitar Jerusalem’s steps? The famed football team has seen owner after owner invest millions of dollars in a club that is fueled with talent, but internally has factions that make success near impossible. The latest owner, tech founder Moshe Hogeg, had a revelation right after Rosh Hashanah. After three years and a futile attempt to bring in an investor from the United Arab Emirates, he announced his desire to sell his share and run, not walk, as far away as he could.

Like Rozenberg, he didn’t see Beitar Jerusalem as a business, and happily donated millions to the club. Not seeking personal gain, he never asked for a medal or a thank you; simply a modicum of respect. Once he realized that both fans and management were at odds with his vision, he chose to quit.

El Al is at the same crossroads; there is an owner willing to invest millions. There is a public willing to give him a chance and the government is offering financial rewards. Like a football team, one needs a strong team with an even stronger coaching staff. Beitar’s owner was wrong – Beitar Jerusalem is a business, as is El Al. 

Aviation is not a toy, as much as gallivanting around the world is a pleasure. It is dollars and cents, and that requires a helluva lot of sense. El Al doesn’t have it today, or if they do it’s a hidden secret that only a select few have knowledge.

Put together a team – insiders and outsiders, frequent flyers, bean counters, dreamers and realists – and decide finally to reinvent El Al. If this pandemic has taught us anything, it’s that we are in a brand-new world, and those insightful enough to live within it will soar. If not, like TWA and dozens of other airlines that no longer exist, your time is over.

Mark Feldman is the CEO of Ziontours, Jerusalem and a director at Diesenhaus. For questions and comments, email him at [email protected]