AIN Guest Perspective: El Al’s Offer Gat
As AIN prepared for the start of the Dubai Airshow, a rare opportunity to interview a Middle Eastern airline executive presented itself. But the offer didn’t come from one of the dynamic Arab carriers in the region. Rather, it came from the one airline certain not to announce any business at the show–Israel’s El Al. Notwithstanding the lack of recent progress in Middle East peace talks, Offer Gat, El Al CEO for North and Central America, expressed optimism that he’ll see the day when Tel Aviv takes a place among the region’s major hubs and El Al among the region’s most strategically relevant carriers. From his offices in New York City, Gat spoke about those prospects, as well as El Al’s goals for the more immediate future.
What would you rate as some of your biggest challenges and biggest opportunities?
From the time I came here [in July 2007] the environment has changed dramatically in at least three different ways, none of which makes our life easier.
One, of course, is the economy, which declined substantially. The other thing is that fuel prices fluctuated in a way that most times was not very favorable to our industry as a whole and, of course, to our business. And lastly, Israel became more attractive to the American carriers and since the time I came we have seen additional capacity from Delta and new routes from US Air from Philadelphia, which, again, increased competition dramatically.
I understand El Al has introduced some innovations to its business-class seating arrangements.
While the general trend of most American carriers was to reduce the quality of service and find new ways to charge for different items because of the decrease in prices, we decided to continue to enhance our service quality. We acquired new aircraft, we upgraded all our existing fleet and included in that was the upgrading of our business and first-class cabin, replacing the seats, replacing the entertainment system and giving a new experience to our clients. This is combined with enhanced service on board, enhanced food and beverages, all of that in that tough period. The value that we give to our customers was increased substantially.
How have you managed to lower expenses even while upgrading service?
We increased efficiency in our operation, we decreased cost in any area that we are dealing with. For example, we decreased our crew hotel costs, not by moving them from five stars to two stars, but moving them to even better hotels but we renegotiated our contracts. Every single aspect of our operation was scrutinized and still is in order to save, and it has accumulated to many millions a year.
In 2005 you instituted a five-year plan to reach certain benchmarks by 2010. How well has that plan progressed?
The essence of that plan was to make El Al a premium airline. And I think that we’ve been more successful than even we dreamt at that time… If you look at [El Al’s second-quarter results] you can see that although we posted a net loss in the second quarter, we achieved a positive cash flow. And I assume in the third quarter we will have a [profit].
What about your market? Do you have plans to add new cities in the U.S.?
We are certainly looking at opening at least two more destinations.
This past May you added Sao Paulo to your route map. Do you see more opportunities in Latin America?
I am sure there will be more destinations [in Central America] but, again, it’s more a matter of getting the right aircraft or enough aircraft…We believe that Africa will be looked at closely in the coming months.
Have you considered the Boeing 787?
Yes, we had an option which we cancelled about two years ago, but it was only because we thought it was premature for us decide. I’m sure that we will reorder those aircraft when the opportunity comes.
When you decide on aircraft purchases, does Airbus ever enter into consideration?
Every time. I’m not involved in the actual negotiation so I cannot give you more detail that that, but I know that in head office they are looking for opportunities.
Have you looked at the A380?
No. We believe that at least for the foreseeable future we don’t need an aircraft that is bigger than a jumbo.
What about the 747-8?
Eventually we shall buy new [747s].
Have you experienced any trouble financing new purchases?
Not really. We didn’t delay even one of our deliveries in the last two years and we’ve had many–not only widebody aircraft. We acquired eight 737s, for example, in the last two years and we didn’t have any issue with any of them.
Do you think the industry has hit bottom yet or do you still see tough times ahead for this year and next?
I think the worst of it is behind us. It will be a bumpy way, especially because the industry is still very cautious about its activity in the future and sometimes because of that a few airlines are taking extreme steps to enhance traffic.
So how did El Al deal with the recession?
Instead of coming and going or stopping and starting, we just changed capacity. We have a very diverse network that goes to the Far East at one end and to America at the other, and we’ve got our regional network and our European network. None of them are affected in the same way and not all of them have exactly the same seasonality. So we are changing aircraft and we are changing capacity between the seasons and between months in order to accommodate each destination according to its unique characteristics.
How hopeful are you about a Middle East peace process finally allowing El Al to realize its potential, to fully reap a peace dividend?
I believe that El Al will have a huge peace dividend. Again, first we need to see that peace arrives to our area. But, being very optimistic about everything, [including peace in the region], when peace arrives El Al will have huge opportunities to expand to the whole of the Middle East. We will be able for the first time to make Tel Aviv Ben Gurion Airport a real hub for the whole region and I believe that from the United States we shall open new destinations in a matter of a very few years. So, yes, of course we are [hopeful].
Are there any other immediate benefits El Al could realize through bilateral agreements between Israel and its neighbors, short of a comprehensive peace?
When we are able to fly over some Arabic countries, we shall be able to shorten our flights between Israel and the Far East by four to five hours. It’s a huge opportunity for us, which can arrive even before a full comprehensive peace comes to the region.
So you’re looking for overflight rights in the near-term?
Yes. The government of the United States is trying to intervene and to pursue it with those countries to allow our aircraft to fly above them, even now before we have any advancement of the peace process.
Which countries specifically?
Saudi Arabia, for example. If we can fly over [it], this will be a major step for us.