Taking Stock / It's the Business Plan, Israir

Four months after optimistically launching charter flights between Israel and the United States, four months after CEO Sabina Biran wrote an open letter to the treasury inviting all the ministers to fly business class at half price, Israir is pulling the plug on its Tel Aviv-New York line.

The charter will be grounded from the end of October, the airline said on Monday. Israir said it had planned all along to shut down the charter line next month and insisted the whole venture had been a success. Occupancy in the flights had been 95 percent and some 15,000 people had taken the line, it said.

Trying to maintain the facade of business as usual, Israir said it would be reopening a regular line from the spring.

But, at present, Israir runs only charter flights to the United States. To run a regular line, it needs the permission of the Transportation Ministry. While cessation of its charter line is a certainty, question marks still hover over a regular line next year.

Sources at the company admit they had entertained fonder hopes for their New York line. Israir certainly faced many difficulties, first and foremost the fierce competition with El Al, and the climb in jet fuel prices.

But the real problem in Israir's business plan apparently lurked in its business class.

Airlines do not reveal their main money-makers, or loss-makers, either. But the industry knows that much of its profit comes from business class. Take El Al, where the business class on its packed New York line is known to be a major source of profit.

Heavy demand for business class on the New York line has allowed El Al to tighten the terms for ticket upgrades, time and again. And if you tried to order a business class ticket on Israir in recent months, you could: it was half-empty, roughly speaking, while business class sections on parallel El Al flights were full.

Israir had frequently suggested that passengers upgrade from coach to business class for a small addition in price, explaining that it had overbooked. But the truth is that anybody selling its business class seats that cheaply has a serious occupancy problem.

How did that happen? Israir had a real product for the public - it slashed business class ticket prices below $2,000, while on El Al a business class seat costs between $3,000 to $4,000.

Businesspeople are supposed to be sharp as knives. They compare prices and saving a grand or two per flight is nothing to sneeze at, especially for CEOs who are supposed to set a model for thrift at their companies.

Nochi Dankner and Avi Fischer, who control Israir, should have known better. They and Biran are among Israel's richest people. They know the minds and hearts of your average Israeli top manager who flies business class.

Failing to fly the distance

Israir's business class failed because it did not, in fact, read the hearts and minds of its market. Namely, Israeli managers flying business class to New York aren't looking for a bargain.

They aren't paying the bill, for one thing. The company is paying. That makes a big difference. Most companies have an echelon of people flying coach and an echelon of people flying business class. The latter don't care what the company pays as long as they personally get to belong to the business class club. That is especially true of government officials.

Second, frequent flyer miles accrue to the person, not the company. And Israir, being a far smaller company than El Al, had no frequent flyer club. So it offered a bargain price for business class without realizing that it was the miles that counted, not the dollars; the fliers didn't see the savings to the company, they saw their lost frequent flyer mileage.

The Israir people should have known better. Flying El Al business class is a status symbol and a perk; a $1,000 savings at the cost of personal frequent flyer miles won't get them to shift from the national airline to wee Israir.

How do the managers explain their choice of El Al instead of the cheaper rival? What about all those cutbacks and vanishing budgets and job losses? What about setting a personal example of frugality?

Happily, soon enough they won't have to explain a thing. Israir is shutting down its New York charter line and that cheap business class option will vanish into the night. Now they can fly El Al in peace and accrue their personal miles, and truthfully say, it's the only option.