The Travel Adviser: Kudos for El Al... kind of

You've got to admire El Al. Its management's tactics should be a case study at all MBA programs.

By MARK FELDMAN
El Al 224.88 (photo credit: Ariel Jerozolimski [file])
El Al 224.88
(photo credit: Ariel Jerozolimski [file])
You've got to admire El Al. Its management's tactics should be a case study at all MBA programs. CEO Haim Romano should be invited to speak to heads of other industries to explain its success. Last year was El Al's most profitable. Even while dropping market share to competitive airlines in 2007, it was able to fly more tourists to Israel than ever before. El Al purchased two new aircraft, named them Sderot and Kiryat Shmona, and public relations personnel were overjoyed. In fact, this marketing move so confused the public that many thought it was the yet to be seen, spanking new Boeing 787, dubbed the Dreamliner. That it was a 20-year-old model, the Boeing 777, was barely mentioned. These were new planes for El Al and while facts on the ground might prove otherwise, it marketed these planes in a public relations blitz seldom seen in this country. We had hundreds of clients requesting to fly on these planes. More kudos for our once national carrier. The price of oil increased to "never before highs" and still El Al succeeded in racking up huge profits despite the increase in costs. Six times in the last year El Al raised its fares to keep up with the fuel cost increase. So great were its profits at the year's end that stockholders were pleasantly surprised with a dividend. And how did El Al start off 2008? With even more brilliance. It announced that prices were going up an additional 4 percent. Not because of the price of fuel; the 20% price increases of the previous 12 months covered that. Because of the weakness of the dollar compared to the shekel. Yes El Al, a publicly based company traded on the Tel Aviv Stock Exchange, was showing smaller earnings when changing its dollars into shekels. Well this makes economic sense, doesn't it? Surely El Al's biggest external expense was in shekels? Surely El Al's largest source of income was in shekels? Not a chance! Airline fuel, like the price of gasoline around the world, is traded in dollars. Astute readers might assume that El Al's income must be in shekels. This would be the major reason behind the 4% fare increase. Oops, El Al solved that dilemma last century. It prices every airfare departing Israel in dollars. And not the mighty Canadian dollar that recently surpassed the US dollar. Good old greenbacks. So whether you're flying to Larnaca or Los Angeles, Brussels or Bombay, your fare is quoted in dollars. All of its income is in foreign currency. Its largest external expense, airline fuel, is in dollars, but still El Al felt obligated to raise its tickets 4% with the explanation that it was due to the erosion of the dollar. A brilliant marketing plan if ever there was one. Of course simply pricing tickets for flights departing Israel in shekels would solve this problem. Imagine an Englishman purchasing a ticket from London to Tel Aviv being quoted the fare in any currency but pounds sterling. Absurd, isn't it? But for Israelis, the allure of the US dollar remains El Al's currency of choice. Transportation Minister Shaul Mofaz is doing his utmost to lower El Al's expenses. El Al's hard earned reputation for security is without doubt the envy of the aviation world. From profiling passengers at airports wherever it flies through unparalleled security on the planes, none of this comes cheaply. So Mofaz generously offers to absorb 80% of its security fees because, while El Al may be a private company, the external threat affects everyone. His stipulation was that El Al simply open up its routes to local competition, primarily Arkia and Israir. El Al, though, brazen as it is, replied with a sly grin and counteroffered that the Israeli taxpayer should absorb 100% of the security costs before it would consider opening up its routes to more competition. The chutzpah of El Al never ceases to amaze me. Still I give credit where credit is due. Rarely has a single company so bulldozed its way though consumers and regulators to achieve its needs. Thus while I cannot give a forecast for El Al's shares in 2008, I heartily recommend that companies explore in depth its business mentality and that business schools study in depth its modus operandi. And perhaps the 120 members of Knesset should try to alter its business practices. The writer is the CEO of Ziontours Jerusalem. mark.feldman@ziontours.co.il