Sunday, April 21st, 2013, 6:53 pm
Update #2: The strike is now over. The Israeli government has agreed to subsidize 97.5% of El Al’s security costs…which is all but guaranteed to make El Al complacent once again.
Update #1, 04/22: It seems from some of the comments that I have struck a wrong nerve. I respectfully think they are getting caught up in the small details and missing the bigger picture. I’m not the one that is being “anti-Israel.”
The ones who are actually harming Israel are the current strikers who want to keep a broken protectionist system alive which is causing massive damage to the Israeli economy. That damage is not just from the current strike, but it’s from trying to keep a system which drives away would-be tourists with artificially high airfares. The current system is the one in which El Al is unable to turn a profit and will not continue to exist unless they shake things up.
United will likely start serving second tier cities like Chicago or San Francisco to Tel Aviv when they start getting more 787s online. What exactly is El Al doing to modernize their fleet or to expand their service in North America beyond Los Angeles, New York, and Toronto?
The point of this article is merely to note some areas where El Al can improve itself so that it can start turning a profit and become an airline that is respected and not derided.
El Al and its apologists will likely have dozens of excuses, but excuses don’t work in business. Innovation and keeping one step ahead of the competition is how you win in a free market.
Originally posted on 04/21.
El Al as well as other Israeli carriers are cancelling flights due to their unions striking to protest the approval of an “open skies” agreement with Europe. The airline had heavily lobbied against the agreement.
The open skies deal will be phased-in starting in 2014 and will be fully implemented by 2019.
The deal is sorely needed. Tourism in Israel lags far behind where it should be due to the high cost of flying there. Inviting more competition will drive down the cost of airfare and increase the number of tourists, who spend lots of money while in Israel propping up the entire economy.
This deal forces Israeli airlines like El Al to compete, something they’ve always struggled to do. Striking will just leave people stranded with a bitter taste in their mouth for Israel’s national carrier.
Rather than protect what’s broken El Al needs to fix itself. To do so it must finally decide if it plans to compete based on service, product, or on price. As of now it does none of those and that’s why it’s financial situation is so dire.
It’s unlikely that El Al will be able to compete on price. The unions aren’t about to accept massive pay cuts. All their whining about keeping a national carrier afloat is malarkey, what they really want to do is keep their overpaid salaries afloat. If faced with either taking large pay cuts to compete they would likely strike until El Al would be forced to liquidate.
I don’t know of any Israeli companies that compete based on service. Customer service and the idea that the customer is always right simply doesn’t exist in Israel.
Still they most definitely have to fix the customer service problems that exist among so many of their flight attendants and call center operators, even if they never will compete on service as the Far East carriers do.
So El Al will have to compete on product. Except that they are the only airline flying between the US and Israel without lie-flat seats in business class. How many business class seats do they expect to sell when Air Canada, Delta, United, and USAirways all have lie-flat seats in business class?
Sure El Al has the only first class to Israel, but if first class is priced higher than the competition’s business class but offers a product that’s worse than USAirways’ Envoy seat then how can it compete?
Frequent flyers, from businesspeople to leisure passengers, love earning miles on flights. But El Al’s Matmid program is the worst in the entire airline industry.
Mileage programs are massive profit centers for airlines. They sell their miles to the credit card companies and thousands of other stores that realize the huge incentive of being able to offer miles to their customers. In the past decade Delta and United were kept afloat in bankruptcy by American Express and Chase who prepaid for billions of dollars worth of miles to keep the airlines afloat. The mileage programs of these airlines are likely worth more than the airline itself.
And yet El Al doesn’t even try to compete for these dollars!
If you have United miles there are dozens of airlines that you can use them on, so even if there is no United availability there likely will be with a partner. With Matmid miles you are forced to use them on El Al (yes El Al’s website claims you can use them on American but none of their agents know how to do this and the rates are ridiculous anyway) which typically has terrible availability. This leaves customers regretting having accumulated El Al miles and teaches them a lesson for the future.
None of the US airlines charge a fuel surcharge when redeeming miles but El Al thinks they can compete while charging a $350 surcharge on award tickets.
None of the US airlines expire your miles if you have any account activity but El Al will expire your miles 3 years after your flight even with activity. Good way to reward loyalty.
El Al increased the transfer ratio from American Express Membership Rewards into their Matmid program (as they get cold hard cash from American Express when people transfer their points to El Al) but it’s still not competitive. A coach ticket is 70K, a business ticket is 150K, and a first class ticket is a whopping 250K points. 150K points plus $350 for an inferior business class product is just the height of stupidity and arrogance.
It’s nice that you can use American miles to fly on El Al (business class is 135K with no fuel surcharges) but with the upcoming American-USAirways merger the El Al-American partnership will likely end if American continues USAirways’ flights to Israel. And in all likelihood American will add flights from their JFK and Miami hubs as soon as they get the TWA pension situation squared away.
El Al can stop the Matmid madness by:
1. Changing over their ridiculous point system to a mileage based system that the rest of the world has.
2. Making customer friendly moves like the elimination of mileage expiration and fuel surcharges.
3. Making their award chart competitive.
And don’t even get me started with El Al’s website. In such a high-tech country you would think they would at least have done a good job on that front. Instead ElAl.com is one of the worst websites in the industry.
El Al recently was forced to roll out an Economy Plus section in response to Delta and United’s new comparable sections. It’s nice that they at least tried to match here, but why not innovate? Introduce the first true premium economy class between the US and Israel that would be affordable for leisure passengers (say 25%-50% more than coach rather than triple the price of coach like business class is) but could provide at least a semblance of bona-fide comfort, not just a few extra inches of legroom. That’s something (unlike a fare war) that can’t be easily matched by the US carriers and could provide El Al with a sorely needed competitive advantage.
A DDF member flew in first class to Israel and bumped into El Al’s CEO, Eliezer Shkedy, on the flight. The DDF member applauded the first class service and meal but expressed his dismay about the first class seat itself which lags far behind other first class seats. Shkedy only replied that “Nobody else has First Class seats from New York to Tel Aviv.” True in theory, but when your competition’s business class seats are better than your first class seats is that really something to be proud of?
It seems that such thinking is systemic within El Al.
The time to innovate is now, or they may not be an El Al much longer.