Airline Crisis Sends Prices Into Pleasant Descent

Airlines are locked in stiff competition, the likes of which have never been seen before - and especially not during the high summer season. El Al and Issta launched their latest bid yesterday, unique in the annals of the aviation industry - buy one ticket, get one free. For the next month customers who buy a ticket to the Far East, the U.S. or South America will get a free ticket to their choice of one of four four European destinations: Prague, Budapest, Bucharest and Sofia. The tickets may be used until February 2010.

The global economic crisis combined with a huge excess supply are the main causes for the insane airlines price war, says the chief executive of British Airways in Israel, Yael Katan, and her local counterparts concur.

Incoming tourism plummeted 22% early this year compared to the same period in 2008 (January-May). Passenger traffic at Ben Gurion International Airport shrank to about 814,000 passengers in May, down 15% from May of last year, and airline traffic fell 8%, to 6,773 takeoffs and landings in the same period.

"To date British Airways prices have remained nearly on par with its competitors. I've now decided to lower prices, for a simple reason - it is important to me that our customers remain loyal," Katan said. Falling incoming tourism and the global economic crisis, which is responsible for a drop in the number of business trips, are to blame for the intensifying competition among airlines, according to the general manager of Austrian Airlines in Tel Aviv, Eli Messer.

Losses in the airline industry added up to some $9 billion in 2008 - double its original estimates, according to the International Air Transport Association (IATA), an industry trade group of airlines. IATA forecasts that losses in March 2009 will total $4.7 billion. In addition, the renewed increase in fuel prices have had a particularly heavy impact on airline revenues. IATA estimates that that the number of airline passengers in 2009 will shrink 8% compared to 2008, and demand for cargo air shipment will fall 17%.

The head of the Israel branch of the International Air Transport Association, Kobi Zussman, says that airlines operating in Israel will see a 30%-40% fall in revenues compared to last summer, up from earlier estimates of 20%-30%. Israeli airlines and foreign airlines that operate in Israel are suffering from the same crisis affecting the global airline sector, Zussman notes.

"The trend that began last summer, with the sharp increase in the price of fuel, had an extremely negative impact on the performance of airlines operating in the Israeli market." Zussman adds. "All airlines are suffering a sharp decrease in demand, particularly demand for the airlines' luxury class seats," he said.

Tourism Minister Stas Misezhnikov, who left yesterday on his first trip to Russia on official business, promised that the Tourism Ministry would continue its focused and intensive marketing efforts worldwide aimed at alleviating the sharp drop in incoming tourism and criticized treasury plans to impose VAT on foreign tourists.

"The Finance Ministry's withdrawal of its plan to levy VAT on incoming tourists is absolutely necessary to prevent the collapse of the tourism industry and layoffs of thousands of workers," Misezhnikov said.

An analysis of traffic at Ben Gurion Airport for May indicates that El Al handled 280,500 passengers - down 11.6% from May of last year. Arkia hosted 20.5% fewer customers, and Israir suffered a 34.2% decrease from May 2008, mainly due to the cancelation of its regular route to New York. Although the U.S. was the most popular destination, the number of passengers nevertheless dropped by 21.2% compared to May of last year. The number of passengers to Turkey, the sixth most popular destination, plunged 45.8% compared to May 2008.

El Al and Issta aren't the only companies vying for custom to and from Israel. Yesterday British Airways cut the price of tickets from Israel to London this summer by a whopping 36% compared to the prevailing rate last summer. The starting price of a ticket to London will be $497, with business-class seats going for $1,410.

Customers are being offered fringe benefits as well as discounts on their tickets. Delta Airlines announced yesterday that the airline will offer a free AAA (American Automobile Association) benefits ticket to any passenger flying from Israel in business class, or anyone buying two tourist-class tickets. As of yesterday European-based Swiss, Lufthansa and Austrian Airlines are also offering special discounts to customers flying out of Israel. El Al is offering upgrades in exchange for frequent flyer "Matmid" points. And as of Tuesday, El Al has partnered up with Fattal Hotels for the next 15 days, each offering customers a discount of $100 on products of the other. Swiss offers round-trip tickets for departure until the end of the year from Ben-Gurion via Zurich to New York, Boston, Chicago, Miami, Philadelphia or Los Angeles for $2,529, for sale until the end of June. Lufthansa tickets to Munich from Ben-Gurion are going for $399, while a variety of European destinations, including Paris, Barcelona, Madrid, Amsterdam, Brussels and Milan will cost $499. Children get a 33% discount. Austrian Airlines in Isarel published its price list of special discounts for young travelers and students, who will be able fly to Bangkok for $980 and to New Delhi for $901.