El Al Airlines will give up its exclusivity on a number of routes in return for a government subsidy of 80 percent of its security costs, Transportation Minister Shaul Mofaz proposed yesterday.
Such a decision would be a dramatic first step in opening up Israel's skies to competition by allowing other Israeli airlines such as Israir and Arkia to compete on regularly scheduled routes only available to El Al at present.
In addition, ticket prices could drop because of competition and because the government would help out on the $50 of every ticket that goes toward high security costs.
El Al Chairman Israel Borovich and Chief Executive Haim Romano were invited to Mofaz's office to hear the decision.
Mofaz's proposal followed months of negotiations with all sides. The state has thus far paid for 50 percent of Israeli airlines' security costs, estimated at $90 million a year for El Al alone. This translates into a $72 million state subsidy in the future at an 80 percent rate. A public committee chaired by the Transportation Ministry's director general, Gideon Siterman, even proposed a 100 percent subsidy.
In return, El Al would agree to gradually opening up its routes to competition, including other Israeli airlines.
For now, El Al has exclusive rights on a large number of routes, as part of its privatization agreement with the state. The deal allows for the approval of a new Israeli "designated carrier" only when El Al's market share of a route is less than 30 percent, or when total passenger traffic through Ben-Gurion International Airport passes 10.8 million a year.
Mofaz said there is no doubt that the move represents a true revolution that will affect the Israeli traveler, the tourism industry and the entire Israeli economy.
"Security expenses create an unequal ability for Israeli airlines to compete against foreign ones. Opening up the skies without creating equal conditions and fair rules would not allow Israeli airlines to compete on an equal basis in the world aviation market," Mofaz said. He called on Israir and Arkia to start preparing immediately to become designated carriers to more destinations soon. They would also become central players in competing for new destinations opening up to Israeli travelers.
El Al responded: "The decision does not solve the problem because the recommendations by the public committee at the Transportation Ministry on opening the skies included a gradual opening, dependent on fully covering the security costs for Israeli airlines. The State of Israel must grant Israeli airlines support to allow them to compete on equal terms."
Israir said: "The company's management praises the decision, even though it still does not cover the full amount of security expenses, and we hope that the decision will be implemented soon."
Arkia said the 80 percent subsidy would create fair rules of the game and allow Israeli airlines to compete against foreign airlines. It said Israelis would benefit from higher-quality service.
But if anyone expects open skies to start soon, there are a lot of roadblocks still in the way. While a number of routes have added a second carrier, and possibly even a low cost one; the number of flights available are still limited on routes. This week the aviation negotiations between Israel and Germany reached a deadlock, with the sides unable to agree when Lufthansa would be allowed to start its new schedule to Munich.
Last month Israel and the European Union opened negotiations on a new aviation agreement, but this is expected to bear fruit only starting in 2010.
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