What impact has ten months of conflict had on Israel’s airlines?

Summary

• Overall, Israel’s connectivity has deteriorated compared to last year due to the precarious security situation in the country and its airspace.
• However, the company’s airlines recorded comparatively good results and were able to maintain their profits.
• In addition, airHaifa plans to start operations soon. The young airline is currently seeking approval from the local aviation authorities.

With the war in Israel and the Gaza Strip raging for almost a year now, the country’s air connectivity to the outside world has naturally suffered. In August, 675 fewer weekly flights were scheduled from Israel than in August 2023, with several airlines, including US carriers such as American Airlines, exiting the market entirely for the time being.

The last few months have been difficult for some Israeli airlines. In August, for example, Israir had 113 fewer departures planned from its home country compared to the previous year, making it the airline with the highest number of canceled flights that month.

However, for others, it was a golden opportunity to increase their market share and increase their profitability and revenues due to the imbalance between supply and demand. Still others saw it as an opportunity to offer new services in new markets in the country.

EL AL’s golden era

Since the war began on October 7, 2023, many airlines have either reduced or completely stopped their services to/from Israel; some carriers have reacted to the current security situation and adjusted their flight offerings accordingly.

However, EL AL, Israel’s national airline, took advantage of cuts by other airlines to increase its market share at the country’s main airport, Tel Aviv Ben Gurion International Airport (TLV).

According to data from aviation analytics firm Cirium, EL AL was the only Israeli airline to increase its flights in August compared to the same period last year, adding 51 weekly flights to its network compared to the same month last year.

At the same time, additional capacity does not necessarily lead to greater profitability, especially in uncertain times such as war.

However, EL AL has only been able to increase its revenue and net profit in recent quarters. The company closed the first and second quarters with revenues of $738 million and $839 million, respectively. As a result, profits in the first and second quarters rose to $81 million and $147 million, respectively, according to the airline’s filings with the Tel Aviv Stock Exchange (TASE).

Average capacity utilization was over 90% in both quarters, and revenue per ASK (RASK) increased by 5% compared to the previous quarter.

The airline’s Q2 report also showed that it had a 21% market share in TLV in September 2023. This rose to 81% by November 2023 and fell to 39% in June, which was still a significant number for the airline.

Arkia expands capacity

Although EL AL is Israel’s largest airline, the country is home to several other airlines, including Arkia, whose fleet consists of five aircraft: two Airbus A321LRs and three Embraer ERJ195s.

Although weekly flight volumes are expected to be 11.5% lower in August compared to the same period last year, the airline plans to operate more flights this month than in September 2023.

To expand its capacity, the airline has leased two aircraft: an Airbus A321ceo and a Boeing 737-700 from Fly2Sky and SkyUp Airlines respectively. The former has been flying on behalf of the Israeli carrier since July 25, while the latter has been displaying Arkia’s flight codes since June 7, according to Flightradar24 records.

At the same time, Arkia’s owners, including Avi Nakash, had to justify their practices in the Israeli media. In an interview with the business newspaper Calcalist, Nakash admitted that Arkia sold tickets at very high prices. He said the airline only responded to demand after foreign airlines had suspended their flights.

“EL AL sells an economy ticket to New York for $4,000 to $5,000, while in peacetime such a ticket costs $1,000. So why is no one talking about El Al?”

EL AL has also been subjected to criticism in public discourse in recent months regarding its pricing strategy, especially as its market share in TLV has continued to grow.

Fraudulent Israir and Air Haifa begin operations

While Cirium’s data showed that Israir has significantly reduced its capacity, Israir’s Q1 report said the company carried a record number of passengers during the quarter. According to a filing with TASE, the airline was scheduled to release its Q2 report on August 21.

Although these were significant capacity cuts, Israir was able to leverage its business model to generate revenue from irregular flights, including charter flights for tour groups that the company sells itself.

In the first quarter, 55 percent of its revenue came from various tourism products, including vacation and tour packages, the quarterly report said.

The airline added that this could lead to an increase in its annual profit forecast if the security situation in the country does not deteriorate. While Israir had delayed the introduction of additional Airbus A320 aircraft shortly after the war began, the company added two A320s to its fleet in July, with one A320 leased from Fly2Sky.

Meanwhile, airHaifa, based at the currently closed Haifa Airport (HFA), is currently applying for its Air Operator Certificate (AOC) with the Civil Aviation Authority of Israel (רשות התעופה האזרחית, CAAI) and is expected to start selling tickets soon. Ch-aviation’s fleet records show that the airline took delivery of its first ATR 72-600 aircraft on July 26.