Middle East

Israel’s EL AL Airlines Net Profit Plummets Amid Growing Competition From Low-cost Airlines

EL AL Boeing 737-800
EL AL Boeing 737-800 | Tis Meyer

EL Al Airlines revenues in 2017 increased by about 3% to approximately USD 2,097 million, compared to approximately USD 2,038 million in the previous year; the growth in revenues arises from the continued growth in the number of passengers flown by the company, which increased by approx. 2.4%, and the 1% improvement in income per RPK (Yield).

Load factor in 2017 amounted to 84.7% compared to 84% in 2016.

The Company’s market-share of passenger traffic at Ben-Gurion Airport in 2017 stood at approx. 28.5% compared to approx. 32.6% in the previous year, due to the sharp increase of about 16% in passenger traffic at Ben Gurion Airport, higher than the rate of growth of EL Al’s operations at the Airport, which recorded an increase of 2.4% and amounted to approx. USD 5.6 million passengers.

Operating expenses in 2017 increased by approx. USD 110 million compared to 2016, inter alia, as a result of an increase in payroll expenses, affected by the strengthening of the shekel against the dollar, wages agreements and a provision for bonuses in respect of the previous year. Additionally, an increase in fuel expenses was recorded due to the increase in jet fuel prices, tax assessment expenditure, and more.

Operating profit in 2017 amounted to approx. USD 29 million, compared to approx. USD 110.6 million in 2016.

Profit before tax in 2017 was approx. USD 8.7 million, compared to approx. USD 93.4 million in 2016;

The Company completed 2017 with a net profit of approx. USD 5.7 million compared to a net profit of approx. USD 80.7 million in 2016;

Despite the decrease in profitability, the Company generates a positive cash flow and continues to present high liquidity:

Cash flow from operating activities in 2017 amounted to approx. USD 284 million, compared to approx. USD 243 million in 2016; EBITDA in 2017 amounted to approx. USD 197 million, compared to approx. USD 287 million in 2016; the Company’s cash and deposit balances as of December 31, 2017 totaled approx. USD 286 million;

The Company’s revenues in the fourth quarter of 2017 rose by about 11% to approx. USD 512 million, compared to approx. USD 461 million in the fourth quarter of 2016.

The Company completed the fourth quarter of 2017 with a net loss of approx. USD 29.7 million, compared to a loss of approx. USD 2.4 million in the fourth quarter of 2016.

In 2017, two new Dreamliners were received by the Company as part of El Al’s acquisition program, and two more aircraft of the same type arrived in 2018; thus, to date, four Dreamliners are in active service – one by owned and three leased.

Gonen Usishkin, El Al’s Chief Executive Officer, said:

“During the year 2017, the Company coped with intensifying competition in the Israeli aviation market due to a significant increase in the number of seats offered by foreign airlines, in particular the low-cost carriers.

“Notwithstanding the challenging business environment, the Company recorded a 3% increase in revenues alongside an increase in expenses, arising both from changes in exchange rates, mainly the Israeli shekel against the dollar, which affected, among others, payroll expenses, and from an increase in fuel prices and other expenses.

“El Al is in the midst of a strategic process to adapt the Company to changes, as necessary to maintain its competitive position and continued positioning as a leading player in the Israeli aviation industry: the acquisition of new advanced Dreamliner aircrafts, which we consider to be a game changer in terms of the Company, will upgrade passenger experience and lead to savings in its operating expenses; the expansion of El Al’s route network in North America, with direct flights to Boston, Miami and San-Francisco, and the additional frequencies to EL AL destinations; investment in digital technologies, aiming to create significant improvement and change in this important domain, and adding in-flight internet. Moreover, we continue, our efforts to enhance operational accuracy.

“We are also in the of a process of changing the format of the flights to the company’s European destinations, thus providing response to low-cost flights, which occupy a growing share of the traffic at Ben Gurion Airport. Within this framework, we consolidated the Company’s European brands under the El Al brand to facilitate and improve customer experience, followed by operational streamlining, while dedicating our business class to loyal business customers. The new model allows El Al passengers to fly to Europe at a reasonable price, and tailor themselves, with complete transparency, a flight package that meets their needs.

“EL AL’s Frequent Flyer Club and Fly Card credit card continue to function as one of its major growth engines, allowing the Company to deepen its relationship with passengers who are club members, by offering them unique benefits.

“I am deeply committed to ensuring the Company’s success while coping with challenging market conditions and competition, and determined to make all efforts to most efficiently implement the strategic process and provide our customers with high quality service and innovative technology.”

Dganit Palti, El Al’s CFO, stated:

“In 2017 the Company received two leased Dreamliners and paid advance payments for three aircraft it acquired. To-date, the Company received four Dreamliners, of which three are leased and one is owned by the Company which financed by long-term loans, affordable interest rates and high financing rates.

“Despite the damage to the Company’s profitability, mainly due to an increase in oil prices and the strengthening of the Shekel against the dollar, El Al generates a high cash flow from operating activities and continues to present high liquidity; EBITDA totaled USD 197 million while cash and deposit balances amounted at the end of the period to USD 286 million, indicating the Company’s financial strength.

“EL AL’s financial condition allows it to maintain its new aircraft fleet acquisition program, thus enabling its future development in the coming years.”

 

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