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Competition spurs El Al to new heights
Journal of Commerce / March 24, 2000

By Larry Luxner

TEL AVIV -- It's a well-known joke: An elderly Jewish lady flying first-class from New York checks her beloved cocker spaniel on board an El Al flight to Tel Aviv. When the plane lands at Ben-Gurion Airport, El Al's ground handlers are horrified to see that the dog is dead.

Fearing an outburst from the woman, they rush out to a fancy Tel Aviv pet shop, buy a cocker spaniel that's identical in size and color to the deceased canine, and proudly present it to the passenger.

"That's not my dog!" she fumes. When El Al personnel insist that in fact it is, the passenger retorts angrily, "No, it's not. MY dog was dead. I was taking her to Jerusalem to bury her!"

All joking aside, Shali Zahavi, director of El Al's cargo division, says Israel's flagship carrier is working extra hard these days to keep its cargo customers happy -- especially since it's facing more competition than ever.

"The U.S.-Israeli market is stable. However, in other markets, we lost revenue because of an increase in capacity in the bellies of jets flying in and out of Ben-Gurion," he said, citing British Airways, Swissair and Lufthansa as El Al's top rivals.

El Al's cargo revenue last year totaled $260 million, which represents 22 percent of total revenues, Zahavi said. Of the 203,000 metric tons of cargo flown by the state-owned airline, volume between the United States and Israel came to 37,000 tons. Europe accounts for about 50 percent of El Al's cargo business.

Leading Israeli air exports include high-tech equipment (microchips, MRI machines, printers and semiconductors), as well as agricultural products such as peppers, tomatoes and cut flowers. Incoming cargo consists mainly of machinery.

El Al's five freighters, Boeing 747-200s, transport 80 percent of its cargo volume, Zahavi said during a recent interview at Tel Aviv's Ben-Gurion Airport. The freighters fly into New York, Chicago and Los Angeles eight times a week. European cargo destinations include Frankfurt, Germany; Brussels; Amsterdam; and London. El Al also flies twice weekly to Hong Kong.

Two of the freighters can carry 126 tons. Three others carry 112 tons, and are converted into passenger aircraft between June and October, when the frequency of its all-cargo flights drops to four from eight per week.

Israel's annual cargo market is around 160,000 tons, with agricultural products accounting for 92,000 tons, Zahavi said. El Al has a 53 percent share.

Zahavi, who had a long and varied career with El Al before assuming control of its cargo operations three years ago, says the cargo division "is operating as a profit center, the only division at El Al to do so."

Nachman Klieman, El Al's chief of press relations, said the airline's biggest customers are fruit and vegetable producer Agrexco, and two garment exporters, Tefron and Delta Textiles -- which together fly out some 60 million pairs of underwear annually.

High-tech companies that fly their products out of Israel to the U.S. and European markets include Indigo, Scitex and Intel, which recently inaugurated a factory in the Israeli town of Qiryat Gat.

El Al's worst disaster occurred on Oct. 4, 1992, when one of its cargo planes crashed into an Amsterdam apartment building, killing three crewmen, one passenger and 39 people on the ground. One year ago, the Dutch government formally concluded its investigation of the crash, completely clearing El Al of accusations that it was carrying secret or dangerous chemicals.

Klieman said the accident was caused by a design fault in the engine pylon assembly. He added that El Al received $44 million in insurance compensation for the loss of the plane and its cargo.

In December, Tel Aviv-based Cargo Air Lines (CAL) became the first local cargo carrier to compete with El Al, using its own equipment -- despite heavy opposition from El Al itself.

Yitzhak Meirovich, vice president of marketing at CAL, said, "We received a government license in December after 20 years of operating with El Al equipment. Now, we finally bought our own freighter, a 747-200, and we're operating 10 flights a week to the U.S. and Amsterdam."

Meirovich, whose company is owned by private Israeli investors, said he hopes to be carrying 80,000 tons on a yearly basis -- mainly agricultural exports.

Zahavi said CAL "isn't much competition as far as volume is concerned, but still they have a license" -- a development that has caused somewhat of a revolution at El Al.

"I see some positive things in the entry of CAL because we all had to change our monopolistic behavior," Zahavi said. "We've changed our structure by emphasizing marketing. When you control a monopoly market, you don't think about marketing because you already have the market."

The next major development at El Al could be the privatization of the airline, which has been in state hands ever since the State of Israel was founded in 1948. There's been talk in recent years of selling off 25 percent, 49 percent or even 100 percent of El Al.

Klieman said the carrier favors privatization. "First, if the employees had stock options, it would give them greater incentives to become more efficient. Secondly, as a private company, the question of flights on the Sabbath would be resolved, thereby increasing revenues."

Klieman, himself an observant Jew, estimates that El Al loses $80 million a year in revenue because government decrees prohibit the airline -- but not its competitors -- from flying on the Jewish Sabbath, which lasts from sundown Friday to sundown Saturday. CAL, not being government-owned, does not have these religious constraints, and flies on the Sabbath.

On another far-reaching issue -- that of regional peace -- the benefits are less certain. Peace treaties with Egypt and Jordan have had no impact on business since those two countries are close enough to Israel for cargo to be trucked rather than flown. However, things could change if Israel establishes diplomatic relations with more distant Arab countries.

Even in the absence of a formal peace treaty with Syria and Lebanon, things appear to be moving in that direction. Israeli passport holders are already allowed to travel to Morocco, Tunisia, Qatar and Yemen. There's also talk of El Al soon beginning direct charter flights to Morocco in cooperation with Royal Air Maroc.

"Once peace agreements are signed with our neighbors, Tel Aviv's Ben Gurion Airport will become a major hub for flights connecting the three continents of Europe, Africa and Asia," Klieman said. "Hundreds of years ago, Israel was a major hub for the spice trade. Therefore, what was so in the past can be repeated in the future."

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