Wednesday, 30 May 2018

More losses at troubled El Al

The Israeli airline, El Al released its latest set of figures this week and they showed an 11% increase in revenues to USD 464 million in the first quarter of 2018. A 2.5% increase in the number of passengers with an increase in load factor to approx. 83.8%; and a 4.3% increase in yield.

However, the carrier also recorded an increase of 15% in operating expenses, for which it blamed on higher fuel prices, expansion and having to give a pay rise to staff so they could earn the minimum wage. The carrier posted a pre-tax loss of USD 57 million.

El Al is facing an uncertain future as weak exchange rates, increased competition from low-cost type carriers and higher fuel prices start to bite into earnings. As a result, the airline is putting into place a business efficiency plan across the company, which will focus on reducing expenses and increasing revenues.

One of the ways the airline plans to save money is by cutting the amount of commision it pays to travel agents and sales companies that flog the airlines' seats. Previously El Al paid a 5% commission on every ticket sold, but from 1st June the airline will only pay a tiny amount, depending on the sales region the travel agent is from (between 0.5 and 1%).  This news has sparked anger among many agents, with three travel agency chains in the UK and Europe removing the airline from sale after 1st, whilst others say they will charge a booking fee to anyone who wants an El Al ticket. 

The airline is also bringing forward the retirement of its Boeing 767 aircraft which had been scheduled for mid-2020 but now will be complete before the end of this year. As a result of this, the airline has cancelled the launch of its new flagship route to San Francisco. 

Loss before tax for the first quarter of 2018 amounted to approx. USD 57 million, compared to a loss before tax of approx. USD 39 million in the first quarter of 2017. Net loss for the first quarter of 2018 was approx. USD 44 million, compared to a net loss of approx. USD 30 million in the first quarter of 2017.

EL AL's CEO, Gonen Usishkin, issued the following statement on the companies performance. "During the first quarter of 2018, EL AL recorded an 11% growth in its revenues compared to the first quarter of 2017. The Company increased its volume of operations, notwithstanding the numerous challenges arising from the Open Sky policy and the intensifying competition posed by foreign airlines, in particular low-cost carriers, and successfully improved its yield by about 4%.

"However, the Company reported an increase in expenses, attributable mainly to the rise in fuel price and changes in exchange rates, thus, at the bottom line, it completed the first quarter, a quarter that is typically characterized by seasonal weakness, with a net loss of approx. USD 44 million.

"In view of the changing reality and growing competition, as well as the increase in fuel prices, changes in exchange rates and regulatory restrictions, EL AL is currently in the midst of an accelerated optimization process, both in terms of its scope and the speed of its implementation. Within this framework, we announced a number of significant steps and more decisions are expected to be made in major areas which has an efficiency potential. The program is comprehensive and reviews all fields of activity and business areas, with the aim of increasing revenues and considerably reducing expenses in order to establish a coherent path for improving results, through a multi-year process.

"The Company is currently in the process of receiving the Dreamliner aircrafts. To date, we have received 4 airplanes and about to receive 3 more airplanes by the end of 2018 .The aircrafts acceptance program is properly implemented in compliance with prescribed schedules, and the Company continues to take all necessary steps required by the program. The demand for seats on the Dreamliner aircrafts is impressive and it certainly meets our expectations regarding the revenues from each service department as planned."

However, its believed that the airline is frantically trying to secure new and broader finances in order to take the new Boeing 787 Dreamliner aircraft, Dganit Palti, El Al's CFO said "The Company is currently working to expand the sources of financing for the aircraft, and is currently raising from a number of international financial entities long-term loans at attractive interest rates and at high financing rates."