Ever since the Health Ministry ramped up restrictions on travel destinations and even called on Israelis to avoid unessential trips abroad, Israel’s tourism and airline industry has been in turmoil – punctuated now by a 60% fall in summer-travel reservations.
On Wednesday, the Health Ministry broadened the list requiring Israelis to enter a 14-day quarantine after returning from abroad, adding Germany, Switzerland, France, Spain and Austria. The list now numbers 13 countries. For the time being, foreigners coming from these countries are not permitted to enter Israel.
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Companies have been swamped with requests to cancel flights, new reservations aren’t being made, and nearly no tickets are being bought for Passover, typically one of Israel’s busiest travel periods. And now reservations for summer travel are down 60%.
Many airlines are canceling flights, while planes that are still taking off often have few passengers.
According to the Central Bureau of Statistics, the number of Israelis traveling abroad in February fell 2.5% to 452,000, down from 461,000 a year earlier.
“There’s a wave of canceled reservations, so we’re canceling a lot of flights – mainly to European destinations,” a senior executive at an airline said. “Flights are leaving with very low occupancy compared to normal. Also, new reservations aren’t being made – people aren’t reserving flights for Passover and they’re barely reserving for the summer. Anyone who doesn’t have to fly is sitting on the fence and waiting to see what happens.”
Ziv Rozen, CEO of Gulliver Tourism, says it has been a dramatic week. “The moment the Health Ministry instructed Israelis to start thinking twice about flying, the atmosphere became extreme,” he said.
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The people still flying are doing so only because of the savings – ticket prices are down 70% for March, Rozen says, adding that fares are down even for the summer, albeit only by 10% to 20%. The discounts are steeper for locations that have been more affected by the coronavirus such as Italy, where the number is closer to 40%.
Rozen says it’s a good time to buy as prices are low and airlines are being flexible with cancellations; the moment the crisis ends, prices will shoot back up, he predicts.
El Al has scaled back operations even to destinations that haven’t been placed under travel restrictions, mainly because cancellations have made flights economically unviable. It has canceled flights to cities such as Vienna, Budapest, Brussels and Frankfurt.
Many airlines are showing flexibility; for example, El Al and Israir are letting passengers cancel or delay flights at no cost.
The tourism sector’s main concern is that the Health Ministry will broaden its travel restrictions.
Cash flow crunch
Meanwhile, El Al is moving ahead with plans to lay off some 1,000 workers, who will be dismissed within the next few days as the airline’s cash flow crisis worsens amid the coronavirus outbreak.
CEO Gonen Usishkin announced the efficiency plan in a letter to employees, stating that he had informed the workers’ union chief and the transport workers’ leader within the Histadrut labor federation.
The Histadrut has asked the government for assistance to prevent the downsizing.
El Al shares closed 6.3% lower on the news; the overall market fell only around 2%. The company’s stock is down more than 30% over the past month.
El Al will be laying off some 1,000 temporary and permanent staff members due to the sharp drop in demand for flights and the accompanying tumble in revenues. Board members and managers will have their salaries cut by 20% retroactive to March 1.
The airline also told the Histadrut and the El Al union that it seeks to slash by 20% the salaries of the highest-earning workers who are covered by collective labor agreements.
The news broke last week that El Al was planning a broad layoff plan, about 16% of its payroll. Also last week the company suspended flights to Italy; it had previously suspended flights to Beijing, Hong Kong and Bangkok.
Usishkin said Thursday that the company expected revenues to be trimmed by $50 million to $70 million for January through April, compared with the same period last year. Two weeks ago it had forecast only a $30 million drop in revenues. Now that service to Italy has been suspended, losses are likely to be even steeper.
Meanwhile, Dan Hotels issued a profit warning Wednesday.
The chain, controlled by Mickey Federmann, said it forecasts a drop in operating profit for the first quarter of 2020, mainly due to canceled reservations. It also predicts a decline in future reservations.
The company said the challenges were directly related to the coronavirus outbreak.
“Even though this is due to an event outside the company’s control, and factors such as the length of the outbreak are likely to affect the company, the company cannot estimate at this time the long-term impact of the virus on it financial results,” Dan Hotels said.
The company’s stock is down around 6% this year; shares in a competing hotel chain, Fattal, have tumbled 25%. Dan has around 14 hotels in Israel, with a total of 4,200 rooms.
Minor macro impact
Despite the impact on plenty of Israeli companies, there is still no indication that the coronavirus crisis is having major implications for the overall Israeli economy, the Finance Ministry and the Bank of Israel concluded following joint discussions.
“If the crisis persists, and particularly if the preventive measures in Israel become more serious and persistent, there is expected to be a significant economic impact,” the central bank said in a statement published on its website Wednesday.
The bank hinted that its monetary committee would take action if necessary, possibly cutting interest rates, and would do so well before the next decision on interest rates on April 6.
“The Committee’s assessment is that the terms of financing in the economy at the present time are very easy, and the low interest rate combined with the continuing foreign exchange purchasing policy provide the necessary support for the economy,” the Bank of Israel said.