Gov’t Panel: Reduce Fees That Carriers Pay in Order to Land More Discount Airlines

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El-Al ticket counter in Ben-Gurion International Airport. Passengers line up at the counter.
El-Al ticket counter in Ben-Gurion International Airport.Credit: Tomer Appelbaum

The Open Skies agreement between Israel and the European Union – approved amid much fanfare three years ago – has vastly expanded the options available to Israelis seeking to buy flight tickets to Europe. The change has boosted the number of flights, the range of available destinations to and from Israel and, of course, the price of airlines tickets. Israelis can now travel to some destinations in Europe for as little as $200 return. It turns out, though, that despite the major progress on the civil aviation front, things could be even better.

Over the past several months, a team representing the transportation and finance ministries took a closer look at the fees the airlines serving Israel pay the Israel Airports Authority. The team sought to create a transparent fee system based on the authority’s actual costs – so that other discount airlines will enter the Israeli market. That in turn would not only potentially lower prices, but also increase the number of destinations served from Israel.

The panel’s report was submitted to Transportation and Road Safety Minister Yisrael Katz back in March but so far, despite the detailed recommendations in the report, nothing has changed. The fees charged the airlines, which are ultimately passed along to the airlines’ passengers, have remained the same.

Just over half of the Israel Airports Authority’s revenue comes from fees paid by the airlines and also separately by the passengers. The rest is from commercial activity such as duty-free shops and other retailers and airport parking.

In each of the years between 2012 and 2014, the authority finished the year with a surplus of more than 500 million shekels (about $125 million), and the interministerial team took the view that the costs to airlines serving Israel can be lowered without compromising the financial strength of the IAA.

The team looked at three scenarios – one pessimistic, one realistic and one optimistic – when it comes to passenger traffic and revenue from commercial activity at Tel Aviv’s Ben-Gurion International Airport. The panel claimed that under the pessimistic scenario, the authority’s cash flow would exceed half a billion shekels a year, leaving it financially sound even if the fees the airlines pay are reduced.

Budget carriers at the airport use the old terminal building (known as Terminal 1), rather than the much larger and more modern Terminal 3 at Ben-Gurion, which opened in 2004.

Representatives of Hungarian low-cost carrier Wizz Air told the panel that the airline fees charged at Terminal 1 are 50% higher than what airlines pay at European airports in Vienna, Prague, Lisbon and Budapest, because European airports give the budget carriers discounts on the official fees.

The panel also recommended tailoring the airlines fee schedules to make more efficient use of the airport, providing discounts on the fees charged in off-peak periods (late morning and evening), while increasing the fees at peak takeoff times – in the early morning, for example.

Currently, the airlines are charged a baggage-handling fee based on the number of passengers landing at the airport, rather than the number of suitcases the airport actually handles for arriving passengers. The panel therefore also suggested that if the airlines were charged based on the number of pieces of luggage that their arriving passengers actually checked in, the carriers could pass the savings along to their customers.

Budget carriers, such as EasyJet, Wizz Air and El Al’s Up Airlines, do in fact pay lower fees at Terminal 1 than they would at Terminal 3. But for the airlines, the use of Terminal 1 is far from ideal. Ground arrangements there are more complicated. There are no duty-free shops at Terminal 1, and the IAA and many of the outbound passengers don’t want to miss the opportunity to engage in duty-free shopping before their flights, so no-frills airline passengers check their luggage at Terminal 1, but are then bussed to Terminal 3, where they board their flights.

The interministerial panel suggested that duty-free shops be opened at Terminal 1.

Ali Gayward, the U.K. commercial manager of EasyJet, which is based in Britain, said the current arrangements at Terminal 1 are one of the carrier’s biggest challenges at Ben-Gurion airport.

In response, the iaa said it has just received the report and is studying its recommendations. Aviation fees, it noted, are set by the Knesset Economic Affairs Committee and not by the authority itself, and no fees at all are charged on domestic flights.

“Unlike any other country in the world,” it added, “the Israel Airports Authority funds passport control, aviation oversight and security from the fees.”

The Transportation and Road Safety Ministry said Transportation Minister Katz has directed the interministerial team to undertake professional talks on its report with the airports authority.

The situation at Ovda Airport, north of Eilat, may be a test case for the importance of low fees charged the airlines. Ireland-based Ryanair, which is a leading discount European carrier, has so far not opted to fly to Ben-Gurion Airport but it does fly to Ovda – but only during the winter months. That’s when it receives grants to operate its flights to the Eilat area.

Carriers serving the airport get 60 euros ($67) for each passenger they transport – a grant that is funded by the Transportation and Road Safety Ministry and Eilat’s hotel association.

Since April, the Tourism Ministry has also been offering new incentives for carriers that launch new routes to Israel, with subsidies for marketing the new services.