Open Skies is good news!

It is true that Israeli companies will have to compete, and may even have to learn more about customer service and smiling.

El al plane at rest 370 (photo credit: REUTERS)
El al plane at rest 370
(photo credit: REUTERS)
Now that Israel’s airline strike is over and the government’s “Open Skies” policy, allowing competition in flights to Europe, is moving forward, Israelis can enjoy a small victory. The fact that El Al and other Israeli companies were able to coerce the government into paying for almost all their security expenses is however a victory for chutzpah.
A good number of people fly El Al not because of the outstanding flight service, the comfort of the planes or Hebrew-speaking attendants, but because of a feeling of tighter security.
Security is a selling point and a marketing asset for El Al, just as leg room is for Qantas or low prices for EasyJet. Without this security edge, El Al might well lose many of its customers.
Is it a fair outcome of an airline strike intended to prevent competition to have taxpayers, some of whom never use El Al, pay for most of its security costs and its marketing niche? Would it be fair for the government to subsidize kosher meals on flights, or more comfortable seats? The fact is that El Al’s employees have no moral case for opposing the implementation of the Open Skies agreement.
Most of them will not suffer from it. In fact, many will benefit from the increase in travel and tourism that will result from Open Skies.
It is true that they will have to compete with other companies, and may even have to learn more about customer service and smiling. But more importantly, El Al’s owners and management will have to learn about efficiency and profitability. Until now, their quasi monopoly status had shielded them from competition, and it is natural that they reacted badly when someone tried to take away their abnormal privileges.
El Al’s employees are better paid than most Israelis with comparable jobs and receive handsome benefit packages.
Only the employees of very protected and unionized industries receive comparable compensation. Although El Al was privatized, it continues to operate in much the same way as the Israel Electric Corporation, Israel’s ports and Israel Railways do, extracting “monopolistic rent” from its customers.
Former Finance Ministry accountant general Prof. Yaron Zelekha claimed recently that “El Al executive salaries are contrary to all professional criteria accepted in the professional literature.”
Those “unreasonable” salaries are the cause of El Al’s low profitability, not the security costs.
Open Skies is a positive development.
It will bring more tourists to Israel, will make traveling cheaper for Israelis and will bring overall economic growth to our nation.
Europe loosened restrictions on consumer transportation as early as 1987, and by 1997, an Open Skies policy was fully implemented within the European Union. As a result of this policy, the numbers of routes with more than two competitors increased by 320 percent between 1992 (before full liberalization) and 2008. During that period the EU saw the emergence of low-cost carriers.
According to the European Commission, Mobility and Transport, Open Skies attributed “the expansion in the number of airlines, higher employment levels in aviation, increased travel, more cities served (and competed for), and low fares to the removal of barriers to competition.”
Asia also benefited greatly from the liberalization of its air transportation.
After Malaysia and Thailand signed a liberalized agreement, the market expanded for both countries by 37% and created more than 4,300 jobs.
Israel will similarly greatly benefit from the Open Skies agreement and it should be extended further to cover flights to and from the United States and Asia. The agreement is also important as a symbol of the setting of national priorities.
Israelis now have a unique opportunity to adopt liberalization reforms in many economic sectors. The next step should be to reform all government companies: the port authority, railways, electric company, water company, and so on. These monopolies pay unreasonable salaries to their workers, have comparatively low productivity and continue to milk the majority of Israelis.
Opposition from the powerful minority of Israelis enjoying the benefits of being government or government-supported monopolies will be strong and the unions will not hesitate to make our lives miserable in order to maintain their members’ privileges. But it might be worth it for the government and vast majority of Israelis to ride out a few strikes, not cave in and then reap the benefits of the reforms.
The writer is the Director of the Jerusalem Institute for Market Studies.