Five Years of Open Skies in Israel: Lower Airfares, More Destinations, Not Enough Pilots

Israel's pact with the European Union has brought a boom in air travel, but Israeli airlines are struggling to meet demand

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Bloomberg

When Transportation Minister Yisrael Katz looks up and sees a plane, he feels a kind of personal victory. In 2016, he had 121,000 opportunities to smile as planes crossed the Israeli skies – an increase of 35% from 2012, before the Open Skies reform.

The Open Skies agreement with the European Union was signed in summer 2012 and ratified the following June. It opens Israeli carriers up to competition from European airlines by lifting restrictions on foreign companies, and restrictions on the scope of operations from certain airports. The goal was to increase the number of foreign airlines operating in Israel and boost the frequency of flights. It was nothing less than a revolution.

The Israeli airlines tried every trick to block it – from wailing and disrupting the flight schedule at Ben-Gurion International Airport to demonstrating outside the Knesset. They claimed they would be ruined and that tens of thousands of people would lose their jobs. Mainly, they argued that the agreement would lead to unfair competition – chiefly because of their small size and expenses, including on security. They were also concerned about getting lousy time slots at European airports.

They were clinging to the old world, but the aviation industry has been changing too, says Giora Romm, who was director general of the Civil Aviation Authority until late 2014, citing the advent of low-cost carriers like easyJet and Ryanair. Just reacting to events is no good: A proper plan was required to fit the changing circumstances, hence the Open Skies reform he led at the CAA.

To soften opposition from Israel’s airlines, the reform was put into effect in stages over five years, ending this year. Now, most of the constraints on foreign airlines operating in Israel have been lifted: there are no more restrictions on code sharing (when two airlines share the same flight) or seat capacity on given routes.

Israel’s airlines are still not completely happy, although Open Skies gives them equal footing with European carriers because of Israel’s unique and unusually strict security requirements. “Maintaining full reciprocity (providing identical conditions, insofar as possible, to Israeli and foreign companies) is impossible, because the Israeli airlines need to maintain safety and security standards that the others don’t. Ergo, the Israeli companies need help to stay competitive,” says Nir Dagan, Arkia’s CEO.

In recent months, Katz has been leading the way to implement Open Skies’ final steps, which involves two things: One is allowing foreign airlines to set up a base of operations in Israel to park and maintain their planes, etc.; the other is “opening the skies” domestically, not only internationally, so foreign airlines can also offer flights from Ben-Gurion International Airport to Eilat.

That should lower domestic flight airfares, including by local airlines Arkia and Israir, with Israir CEO Uri Sirkis saying they’ll adapt to the competition if and when it happens. It will then be able to drum up more business by being able to fly between airports inside EU countries and drum up new business that way.

An El Al 747 plane landing at Ben-Gurion International Airport.

There’s no question that Open Skies has increased air travel, with records broken in 2016 when 17.3 million international passengers flew through Ben-Gurion Airport, compared with 12.4 million in 2012.

The trend has continued into the first four months of 2017: Passenger traffic is up 20% compared with the same period of 2016. And April 2017 saw 25% more passengers than the preceding April.

El Al Airlines, Israel’s flagship carrier, flew four million people in 2012 and accounted for 33% of international flights into and out of Ben-Gurion Airport. In 2016, it had shrunk slightly to 32% of the market, but still enjoyed an increase of 1.5 million passengers. Israeli airlines are also offering more destinations. In fact, business is so brisk that, like many airlines elsewhere, they’re actually short of pilots.

But they’re also struggling to survive against the low-cost competition. Even though fuel costs are down, the smaller airlines are in difficulty. Making matters worse, arranging for appropriate security can be difficult. Israir had to make changes to its plan to start service to London Luton, for example.

Sirkis claims that while foreign airlines are constantly launching new destinations, Israeli companies have to contend with unique obstacles – including the need for Israeli security to be stationed at foreign airports. (El Al is responsible for inspecting airports outside Israel and ensuring that their security is adequate.)

Israir and Arkia have often claimed they possess the operational and commercial capabilities to increase the number of flights and destinations. But they depend on the security approvals and security services provided by El Al around the world.

In the past two years, there has been an argument over who should handle aviation security in the future: leave it with El Al, or hand it over to the CAA. In the past, Transport Minister Katz pushed a plan to establish an independent security authority. This idea appalled his fellow ministers, but the idea hasn’t been killed.

The Israeli companies are striving to achieve customer loyalty in order to avert collapse. They still moan (and rightly so) about Israel’s restrictive security arrangements, which are constraining their ability to add new routes and extra flights in order to stay competitive.

Security bottlenecks aside, one way they can cope with pilot shortage is to lease planes from foreign companies, which enables them to add flights and boost revenues. By the same token, though, using leased planes can undermine passenger confidence and the company’s reputation: Leased planes are often old, and the air crews – mostly foreign – often do not meet the standard that Israelis expect.

The aviation authorities approve the use of leased planes, Romm says. “It’s the norm in the aviation industry – which is highly seasonal – to lease jets, but only to a degree. Just as there’s no need to build enormous synagogues so they have enough capacity for Yom Kippur, the same applies to planes.”

Leasing is fine, with or without crews: it’s a question of how much – and at El Al it’s become a tool to intimidate the pilots, Romm claims, and the leasing phenomenon has gotten out of hand.

Anyhow, the pilots at all the Israeli airlines argue that leasing is detrimental to flight safety, even though every plane receives the necessary permits from the IAA. For one thing, the planes are old. For another, a pilot can’t just hop into a cockpit and start flying: adjusting to another plane takes time. That in and of itself constitutes a hazard. It’s also bad for customer trust, they say. Note that last summer, El Al – which touts itself as being “a home away from home” for Israelis – used leased planes with foreign crews, a fact the passengers usually only discover as they board.

Last week, a plane leased by Israir to fly from Warsaw to Tel Aviv encountered mechanical problems and had to land in Slovakia for repairs. “It stinks to know you’re buying the track record and reputation of an Israeli company, and in the end get a foreign company you can’t rely on,” says one passenger who was on the flight. “The plane had an Israeli crew who spoke Hebrew, but I felt way less confident. We’re prepared to spend a few more euros for an Israeli airline, and so we were disappointed.”

The number of airlines operating at Ben-Gurion Airport has not changed much. The change is in the low-cost airlines, which have been sprouting like mushrooms. EasyJet is the third-most active airline at Ben-Gurion: it flew 720,000 passengers in 2016, compared with 136,000 in 2012. It is followed by Greece’s low-cost company Aegean Airlines and Hungarian Wizz Air. Turkish Airlines and Aeroflot stand out among the regular airlines with a significant jump in passengers.

Following the Open Skies reform, no less than 11 airlines will be flying from Israel to France and Italy this summer; 10 carriers will compete over flights to Spain; and nine over flights to destinations in Germany and Greece. This month, Terminal 1 will be opened for charter and low-cost international flights to 23 European destinations.

With the increase in competitive goals and prices, Israeli passengers have been changing their consumption patterns. Israelis are discovering low-cost companies and traveling abroad more cheaply. Tour operators hope to jump on the bandwagon, too: the upshot is tour packages that are a fraction of their 2013 prices.