Israel’s Supermarket King Wants to Fly You to Dubai, but Not on Shabbat

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Rami Levy sits in the cockpit of an Israir plane
Rami Levy sits in the cockpit of an Israir planeCredit: Israir

Passengers on the first Flydubai flight out of Israel at the end of November were shocked to see Rami Levy, the Israeli supermarket tycoon, seated in the crowded tourist-class section. Sitting in an aisle seat, he conversed with his fellow fliers about the produce selection at his stores, food prices, Jerusalem (the city he grew up in) and the state of the Israeli economy.

“What’s so bad about flying tourist class? Everyone on board arrived in Dubai at the same time. There are more people in tourist class than in first, and I like talking with them,” Levy told TheMarker in an interview, an edited version of which appears here. “I adjust myself to the financial situation of the people I’m flying with. If I’m flying with someone who plans to book business class, I’ll fly business, and if I’m with someone who can’t afford business, I fly economy so he’ll feel comfortable.”

Levy said he flew for the first time at age 27, when he attended a food exhibition in the early days of his grocery business. A lot has changed since then, among other things that Levy is no longer just another passenger: As of last month, he is now joint owner of the Israeli airline Israir.

Levy spoke to TheMarker together with his Israir partner Shalom Haim; Moti Hazan, the chairman of the two men’s company BGI; and Israir CEO Uri Sirkis.

Levy’s interests have in recent years expanded beyond his chain of discount groceries to include a mobile-phone operator, the Good Pharm pharmacy chain and the Coffix chain of cafés. He spent more than a year battling for control of Israir, which had been owned by the Argentinean tycoon Eduardo Elsztein through the holding company IDB Development before it was declared insolvent. Levy and Shalom paid 162 million shekels ($49 million). BGI owns 51% of the airline and Levy’s supermarket company another 24%. The rest of Israir is owned by IDB bondholders.

Levy believes there are synergies between groceries and air travel. And, as unlikely as that seems, he’s not the first one to see them. In Israel, the No. 1 chain Shufersal collaborates with the online travel company Gulliver and in the U.K., Tesco’s Clubcard entitles holders to points toward flights on British and Virgin Atlantic.

Why were you so determined to buy Israir at a time when the future of global air travel is so much in doubt?

Levy: “The skies will be reopening soon, and the situation will be like a champagne bottle after it’s been shaken – you open it and out spurts the bubbles. Everyone wants to travel abroad. See what happened when they started flights to Dubai, despite the difficult economic situation. One hundred thousand people flew to Dubai, 85% of whom were from the middle class or below, according to figures we have.”

Supermarkets are a relatively low-margin business, but at least demand is steady and the risk is low. Aviation is both low margin and high risk. Why chance it?

Levy: “Every business carries risk. The airline and tourism business was hurt by the coronavirus, but the damage won’t last forever.”

Many economists say that once unemployment benefits expire in June, there will be a sharp drop in consumer spending. How does that square with your assertion that people are ready to spend money on foreign vacations?

Levy: “We’re addressing the middle class and below, giving them the option of a low-cost holiday abroad. My [strategy] at Israir will be no different than it is in the cellular, pharma and supermarket markets.”

Haim: “You don’t need to be health minister to realize there’s more light than darkness. We’re moving closer to a resumption of air travel. Israir is an airline that doesn’t run away from challenges. In addition, even as the rest of the country is shut, supermarkets are still open and can continue to sell tickets.”

That’s the plan – to sell holiday packages at supermarkets?

Levy: “We want to massively develop our club credit card and link it to other things. But Sirkis is the one who will run the company [Israir], so ask him.”

He turns to Sirkis, who has been Israir’s CEO for nine years. The two live in the same neighborhood, have known each other for years and have collaborated on tie-ins between the supermarket and airline. “When I came to sign on the deal to buy Israir, I conditioned the acquisition on Sirkis’ remaining in the job as CEO.”

Sirkis: “Aviation is capital intensive, but with low profit margins and relatively high risk. The leading companies in the sector are those with a passion for cost-cutting. We can’t grow when there are airlines like Hungary’s Wizz Air or Ireland’s Ryanair, but over the years we turned our airline into one that most of its revenues and profits come from the tourism business we developed. Today the airline’s ratio of tourism to aviation is 30%-70%. That’s how Israir posted annual profits of $10 million every year in 2015-19.”

Israir flight attendants in full PPE prepare for a Tel Aviv to Eilat flight Credit: Gil Cohen-Magen

Despite the coronavirus, which caused revenues to shrink two thirds to just $127 million, Israir posted an operating loss of just $11 million in the first nine months of 2020, compared with a $15.5 million operating profit the same time in 2019.

The carrier succeeded as much as it did partly by offering big manufacturers such as Intel Israel and Israel Aerospace Industries regular cargo service during the pandemic. It also conducted rescue and other special flights. It carried everything from dogs to honey bees, and got a special license to carry dangerous materials. Taking advantage of its rivals’ weaknesses, it got permission to fly to new destinations such as India, China and Uzbekistan.

Meanwhile, Israir cut its payroll to 380 from 520, in part by moving sales of tickets and holiday packages to the internet and eliminating its call centers. It ended a costly maintenance contract with Lufthansa and got approvals to conduct its own periodic inspections of its Airbus jets.

The result is that when the COVID restrictions on air travel are lifted, Israir will be positioned to be much more profitable. That’s what had caused three buyers to emerge for the carrier in the midst of the coronavirus crisis.

Sirkis: “The tie-in between Rami Levy and Israir will enable us to reduce costs even more because Rami Levy is so big and well-known. For example, today we are paying the banks high rates of interest, but going forward we’ll play less, thanks to Levy. Everything about the airline, like interest rates, real estate for office and marketing costs will benefit from the size advantage. ... We’ll be able to do things we couldn’t until today, such as entering into partnerships with hotels and making joint offers to Rami Levy and Israir customers.”

Rami Levy, through a privately owned company, is developing two hotels in Jerusalem, building another hotel in Portugal and renovating a fourth in Cyprus before it becomes a hotel to serve the religious public.

How many hotels do you plan to buy or develop?

Sirkis: “If we meet again in another two years, I assume that Israir will by then have hotels in Greece and other of our key destinations. Israir will either own them or have options to buy part of the properties. It won’t operate the hotels, but it will be committed to selling a certain quota of rooms every year.”

Levy: “Because the industry is going through such a difficult time now we’re getting a lot of offers for hotels, so we’re taking advantage of the options available right now. Hotel owners are offering us 15% or 20% stakes in exchange for nothing more than cooperating with them. When we’ve developed the tie-in between Rami Levy, the hotels and Israir, I will be able to offer deals where a Rami Levy shopper pays a certain price on a vacation at a hotel in which I own a 20% stake without ever having spent money buying it.

“In Dubai, I met the owner of a company with 20 hotels in Greece. When he heard that I was trying to buy an airline and tourism company he said, ‘Come be a partner in my company. Take as much as you want.’ That’s because economic conditions in the industry aren’t good.”

Passengers aboard an Israir flight in October, 2020. Credit: Gil Cohen Magen

You want to become a hotelier?

Levy: “I manage my supermarkets. Israir wIll be run by Sirkis and Hazan, the chairman of BGI, which owns 50% of Israir. I’m investing in Israir so that we can cooperate, then Sirkis and Israir will profit a little, I’ll profit a little, the marketers will profit a little and the consumer will profit from the added value we give him. Even the meals served on the planes will be made at our facility.”

All the interviewees had been effusive until now in laying out their plans for the future of Israir, but when it came to the issue of Shabbat observance they suddenly went silent. A few days earlier, El Al Airlines’ new owner, the American yeshiva student Eli Rozenberg, announced that its Sun d’Or unit would stop flying on Shabbat. A charter carrier that serves mainly Mediterranean vacation destinations, Sun d’Or had been used by its parent company to skirt its self-imposed ban on Shabbat flights while keeping its ultra-Orthodox clientele happy.

Israir is now also controlled by Orthodox-Haredi investors. Haim, a Haredi entrepreneur whose holdings include the food maker Taaman, has been called “the Rami Levy of the Haredi world.” Inheriting his father’s food business, Haim developed an import-distribution business that targets Haredi retailers.

Levy is a Sabbath observer and his four adult children are religious. Business tenants of his real estate properties must close on Shabbat, and Levy pulled away from a plan to buy Delek Israel amid concerns that its Menta convenience stores opened on Shabbat.

However, Levy and Haim have declined to say whether they would order Israir to cease Shabbat flights, a move that would severely undermine the airline’s ability to compete.

Let’s talk about the elephant in the room: Will you stop Shabbat flights?

Levy: “We haven’t made a final decision on this matter, but all my businesses don’t operate on Shabbat. There are seven days in the week and one of them is a day off. On that day, people need to rest, go to the beach or pool, or be with family. Today I asked Sirkis for the first time what percentage of flights occur on Shabbat and he told me about 10%. If the airline stops flying on Shabbat, I will increase flights by 30% from people who don’t fly on Shabbat. We can, for example, develop hotels in Cyprus, Greece, Dubai and other places for Israelis who don’t fly on Shabbat and want kosher hotels.

“At the end of the day, we’re based in Israel. Most of the population is traditional, and 95% of all businesses are closed on Shabbat. For instance, the supermarket chains that do open on Shabbat have limited turnover. I want to serve all Israelis without exceptions – Arabs, Haredim and the secular.”

What about serving the people who want to fly on Shabbat?

Levy: “Those who fly on Shabbat have the alternative of not flying with me but with another airline. But if I do operate on Shabbat, the religious public can’t fly with us.”

TheMarker has learned that Haim frequently consults with Rabbi Pinchas Abuhatzeira. Eli Rozenberg’s father, Kenny Rozenberg, is also counted among the rabbi’s followers and reportedly bought El Al on his recommendation.

Shalom Haim, could it be that Rabbi Abuhatzeira now has a say in how two of Israel’s airlines are being run?

Haim: “I consult with a lot of rabbis, and Abuhatzeira is one of them.”

Did you consult with him before you bought Israir?

Haim: “I don’t remember, but I see him once a month, consult with him a lot about all my business dealings. It’s not as if he controls Israeli civil aviation, as you’re hinting at.”

What will you tell Abuhatzeira if Israir continues to fly on Shabbat?

Haim: “Even if I vote against Shabbat flights and beg, I only hold 25% of the company. Rami Levy controls 50% and BGI is a public company with a board of directors. If Google were to decide that it won’t operate on Friday or Saturday to give its employees a rest, no one would protest, and that’s how it has to be with us. In any case, we haven’t decided and we’ve said we’re going to wait two or three months before we do.”

For the airline to efficiently operate its fleet of four Airbus 320 and three ATRs, they have to be flying as much as possible. How can you not harm the interests of the IDB bondholders, who now own 25% of Israir?

Levy: “I understand the bondholders’ concerns, but the bottom line is they believe in our abilities and the synergies we bring to the business, so they supported our bid. We will take the airline public and bring it to a valuation of half a billion shekels, compared with 172 million today.”

Hazan: “On the eve of the vote, the bondholders expressed to me their reservations, such as the risk that the airline would fly on Shabbat with its new owners, Levy and Haim. But they looked at the big picture and in the end decided to trust us.”

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