El Al Israel Airlines reports 11% increase in revenues

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El Al Israel Airlines reported an 11% increase in revenues to USD 464 million in the first quarter of 2018; a 2.5% increase in the number of passengers; an increase in load factor to approx. 83.8%; and a 4.3% increase in yield.
Alongside this, the Company recorded an increase of 15% in operating expenses, attributable primarily to the growth in operations; an increase in fuel expenses totaling approx. USD 23 million, mainly due to the increase in fuel price; an increase of approx. USD 7 million in payroll expenses following the erosion of the US dollar against the New Israeli Shekel; and an increase in minimum wage.

Net loss for the quarter amounted to USD 44 million.

Due to the complex reality faced by the Israeli aviation industry, particularly vis-à-vis low cost carriers, and in view of the challenges awaiting the Company in the near future, including intensifying competition and increase in fuel prices, EL AL management has resolved to take a number of measures to adjust its activities to these challenges:
Deepening the implementation of a business efficiency plan across the Company, including reducing expenses and increasing revenues.

Changing the compensation model for agents in Israel and abroad – The company adapts the trend prevailing among most of the world’s leading airlines, by changing the compensation model between airlines and travel agents, and will move to a new model in which no base commission will be paid to agents, which currently stands at 5% in Israel and a variable percentage in countries where it operates, as of June 1st 2019.

As part of the Company’s decision to accelerate the optimization process of all wide-body aircraft and in order to enhance customer service and becoming more efficient with the renewal of the Dreamliner fleet, the Company is currently engaged in scheduling the early removal 767 fleet from service by the end of 2018 instead of 2020.

Due to the early removal from service of one aircraft of the 767 fleet that was damaged at Ben Gurion Airport, it was decided to postpone the launch of the San Francisco route to the second quarter of 2019.

In April 2018 the Company started selling flight tickets to destinations in Europe based on the new model, which allows Economy Class passengers to choose from three types of flight product packages at various prices, tailored to their needs. This model allows the Company to more efficiently compete with all players in the market, in particular low-cost airlines.

• Operating revenues amounted in the first quarter of 2018 to approx. USD 464 million, compared to USD 418 million in the first quarter of 2017, reflecting an increase of approx. 11%.
• The increase in revenues was primarily attributable to an improvement in a number of significant items:
o The number of tier segments increased in the first quarter of 2017 by approx. 2.5% compare to last year; available seats per kilometer (ASK) increased by approx. 3.1%; the Company’s operations in RPK terms (revenue passengers per kilometer) grew by approx. 3.3%; the Company’s operations in terms of flight hours increased by approx. 2.7%
o Aircraft load factor stood at approx. 83.8%, compared to 83.6% at the first quarter of 2017;
o Average yield per RPK increased by approx. 4.3% compared to the first quarter of 2017.
• El Al market share of traffic at Ben Gurion Airport amounted to approx. 27.9%. In the first quarter of 2018, the Company recorded an increase of 2.5% in the number of passengers flown by the Company, with passenger traffic at Ben Gurion Airport increasing by higher rate of 19%.
• 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.
• The increase in loss is due primarily to the increase in jet fuel costs as a result of an increase of 25% in jet fuel price and an increase in payroll expenses following the erosion of the US dollar against the New Israeli Shekel.
• Cash flow from operating activities in the first quarter of 2018 amounted to approx. USD 14 million compared to approx. USD 77 million in the first quarter of 2017. The difference in cash flows was due primarily to the increase in net loss and a payment of approx. USD 22 million to the tax authorities in respect of an audit of assessments, the expense for which was recorded in the previous year.
• EBITDA amounted to USD -14 million (loss), compared to USD 30 million in the first quarter of 2017.
• EBITDAR amounted to USD 14 million, Compared to USD 30 million in the first quarter of 2017.
• The Company’s cash balance as of March 31, 2018 totaled approx. USD 243 million.
• The Company’s equity as of March 31, 2018 totaled approx. USD 273 million.

EL AL’s CEO, Gonen Usishkin, announced today as follows:

“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.”

Dganit Palti, El Al’s CFO, announced today as follows:

“Three of the five Dreamliner aircrafts that the Company is about to be equipped in 2018 will be owned by the Company. One of them was received in March and the other two will be delivered in June and August. 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.

“The Company also first contracted LOI with investors from Japan, which specialize in financing an equity tranche to aircrafts for airlines companies around the world, to finance the equity tranche to the aircraft expected in June, under comfortable conditions.

“The Company completed the first quarter of 2018 with cash and deposits balances of USD 243 million, indicating its financial stability.”

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Chief Assignment editor is Oleg Siziakov

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