El Al, Arkia Discussing Merger as Industry Struggles

Representatives from two companies have been discussing plans for cooperation, but any form of cooperation would be a dramatic step requiring approval of Antitrust Authority.

The dire state of the international airline industry may be pushing Israeli carriers El Al and Arkia toward a merger.

Representatives from two companies have been discussing plans for cooperation, which could go as far as a merger. But any form of cooperation would be a dramatic step requiring the approval of the Antitrust Authority.

El Al - David Bachar - February 2012
David Bachar

On Friday, Arkia's flight attendants held a meeting to discuss the implications of a tie-up.

El Al declined to comment; Arkia said shareholders in the three Israeli airlines were constantly talking and that in this case, too, the talks were between shareholders and not management. Regulators hold the key to any merger, Arkia noted.

Israel's three air carriers - El Al, Arkia and Israir - have had a tough year.

But it's not just them - it's a bad time for international air travel in general. Two European state-owned carriers have gone bust so far in 2012 - Hungary's Malev and Spain's Spanair. Both had run regular flights to Ben-Gurion International Airport.

The Israeli airlines said they were having a hard time competing against international airlines, especially because these airlines were unwilling to let the Israeli companies into their partnership programs. The partnerships enable airlines to operate flights jointly and offer more destinations.

El Al CEO Eliezer Shkedi told the Knesset Economics Committee two weeks ago that every partnership has 2,500 to 4,000 planes and flies to hundreds of destinations. In comparison, the Israeli airlines have no more than 45 planes and are struggling to compete against the partnered international airlines. "We can't get into any partnership and it's not for economic reasons, but because we're Jews," he said.

Israel's airlines will face even more difficulty if the state goes ahead with a plan to sign an open-skies agreement with the European Union, which would open Israel up to full competition.

The local airlines fiercely oppose such a plan, which they say could destroy the local flight industry altogether.

Meanwhile, their operations have been slowing over the past few months. They flew 298,000 passengers through Ben-Gurion last month - 6.3% fewer than in January 2011, figures from the Israel Aviation Authority show.

Most of the drop was due to Arkia, which transported 12,400 passengers last month - 35.5% fewer than in January 2011. Israir flew 12,400 passengers, a 1% drop.

El Al actually flew 2.3% more passengers last month than it did a year earlier. And the airline is operating only 210 flights a week this winter season, 2% fewer than it did last year, according to Aviation Authority figures.

El Al flies to 35 international destinations. It recently stopped flying to Sao Paulo and two cities in Ukraine.

Arkia operates 12 flights a week to five international destinations. Israir runs five flights a week to two international destinations. The Israeli airlines are expected to keep losing market share in flights in and out of Israel. Currently they control 40% of the market; that's expected to drop to 37% by April.

Meanwhile, international airlines are operating 8% more flights to and from Israel than they did a year ago.