LY777

If LY could join an alliance, which one would be the best for them?

NYTA

I'm going to go with Oneworld since they are already partners with AA and that seems to be the most likely one but at this point, any alliance would be an improvement.

GUWonder

Oneworld if I had my way.

joshwex90

Disagree that OW would be best *because* of their relationship with AA. An airline could join an alliance while maintaining a relationship with an airline from another alliance. True, it's a little more awkward considering that by being in an alliance that isn't OW, they'd be partnering with a rival, AA. (This isn't the case in other countries because America is a rarity in having 3 large carriers, each a member of a different alliance.)

In support of NYTA, they also have a relationship with QF which could be expanded, and their flights to HKG could link up to CX (helpful considering the expanding ties between Israel and the Far East, and especially China).

They would be competing head to head on the London routes with partner BA, though it could help by giving both airlines flexibility in IRROPS.

An additional benefit of OW would be GRU. Call me naive, but I believe they will reinstate flights (eventually) to GRU. LA/JJ staying in OW and having a large hub in GRU would be great for the LY flights to connect to.

MH and RJ (more so MH) seem to be the biggest obstacles politically, and from a business perspective, I don't know how much BA wants LY in OW. But I think if those could be overcome, (and LY management could be overhauled, and they improved the product - hard, soft, technology, FFP,) LY would benefit greatly from OW and could even offer something.

ELY001

They cannot reinstate GRU flights because the cost of operating those flights was significantly higher than the revenue they could generate for the price per ticket. This is something the VP of North America told me himself.

Now if LY ever brings its operating cost structure down, then they could reinstate those flights. But that would require a complete overhaul of the airline, the likes of which I discussed in previous threads.

LY777

Of couse, LY could offer something to an alliance. There are airlines that offer less than LY and yet belong to an alliance: eg. Tarom or CSA. I really wonder what they bring to Skyteam...

joshwex90

In the long run, for whatever reason it is, LY will change course. Maybe the shareholders will get involved. Maybe they'll be forced into bankruptcy and will emerge with new management; etc.

Once that happens (and may not be this year, next year, or even for 5 years,) and they overhaul themselves, (think Gordon Bethune and Continental in the 90s,) they will reinstate GRU as that has the potential to be a huge market. Obviously, this is just my opinion

ELY001

Josh,

As far as I see it they have 2 choices.

1. They need to get new controlling shareholders who will be able to get management that will wrestle with unions (like Gordon did) to get new contracts while cutting management and redundancies. These new controlling shareholders would also need to invest considerable sums into the airline for new a/c etc.

2. Bankruptcy where EL AL's debts and contract obligations would be crammed down and the airline would emerge with new owners who will buy into the company.

IMHO EL AL can't wait 5 years for either of the above scenarios to occur. They are so far behind industry standards for products and operations now that they just wont be able to survive another 5 years doing things they way they have always been done. Also, they cannot sustain losses year after year and continue operating. Eventually they will exhaust their cash on hand.

As far as alliances go, in previous threads where I discussed in depth what EL AL needs to do in order to compete I mentioned getting into an alliance, preferably OneWorld as one of the things they need to do.

BizFlyin

Flag carriers don't die, they get bailed out.

ELY001

EL AL is no longer a flag carrier. It is a private, for profit business enterprise controlled by the Borovich family, and NOT the Israeli government. Consequently, I doubt, under current political circumstances, EL AL would be bailed out.

The government signed "Open Skies" and a new agreement with China, both of which are detrimental to EL AL in its current form. Also, the current Prime Minister was the one who spearheaded EL AL's privatization when he was Finance Minister and holds to the belief of free enterprise and no government bailouts. That, coupled with the fact that the government recently raised taxes on citizens to plug a higher than projected budget deficit all indicate that the current Israeli government would not bail out EL AL, particularly given the fact that the company itself is not that popular amongst the Israeli populace.

RedChili

QR would be a bigger problem than RJ or MH.

In Skyteam, SV and ME would be the obvious problems.

Star is the only alliance where all members are from countries with diplomatic relations with Israel.

IMHO, alliances are perhaps becoming a thing of the past. Look at the new QF-EK partnership. QF has better cooperation with EK than any Oneworld member.

El Al could do the same thing: Get some good agreements with various airlines from all over the world. Airlines like AA in North America, JJ in South America, KL in Europe, CX in Asia, SA in South Africa, and QF in Australia. Provide seamless connections thorugh their hubs. Offer Matmid members the possibility of earning and burning on all these airlines. Create a burning chart whereby Matmid allows members to combine several airlines in one journey. Get agreements with these airlines to allow Matmid elite members the possibility of lounge access and business check-in. (The final point may be a hard sell, but why not try?)

ELY001

Yes, but Star Alliance has decided to flood the TLV market and take away LY's pax. Just look at what Lufthansa and Turkish have done. From the USA you have UA and US poaching pax from LY. Star has no need for LY as it has the TLV market nearly conquered.

As far as alliances being the thing of the past, I happen to disagree. Just about every airline out there (serious ones at least, with the exception of EK) are members of alliances. To supplement benefits to their pax extraneously to the alliance scheme, some form codeshare/partnership agreements such as the QF-EK example.

I am surprised that nobody has challenged the alliance framework in American or European Union courts. Certainly a good faith argument could be made that they operate as cartels and in a manner which has a negative adverse effect on competition and thus violate anti-trust/competition law.

I advised the EL AL board and management look into the possibility of suing Star alliance in US and EU courts for anti-trust/competition law violations but they have yet to do so.

joshwex90

Perhaps, but that doesn't mean they don't change drastically. Just compare SR and its successor, LX.

Being a private business doesn't negate it being a flag carrier. BA is the flag carrier of the UK; LH is the flag carrier of Germany. Flag carrier doesn't have to be a legal distinction anymore. They may not have preferential treatment, but they do have a larger "safety net" by the government. (i.e. Their collapse is bad for the country)

Israel and Qatar have maintained some levels of cordial diplomacy, and even had interest and trade missions in the other countries. "Relations" with Malaysia are worse.

(Emphasis mine)

It would be a very hard sell. One of the great benefits of alliances is the reciprocal benefits. That's much harder to negotiate with each individual airline, and there would be a need to negotiate with numerous airlines. That's a tall order for LY.

GUWonder

Following industry, I'd say LY is better off with an alliance that better serves Israel's current international export patterns and could help LY sort of get around the issue of an anti-Israel trade block by some countries.

Given how much and where Israel trades with the US, Hong Kong, and UK, OW seems to make at least as much sense as the other two big alliances.

ELY001

The term "flag carrier" generally comes with a connotation that the airline is controlled or owned by it's home government, which is no longer the case for EL AL. However, you are right, technically an airline does not need to be owned/controlled by its home government to be designated a flag carrier.

Aside from paying most of it's security costs, what "safety net" does the Israeli government provide EL AL? Despite proclamations by both management and unions that Open Skies would bankrupt the airline (seemingly the only issue management and unions agree on these days), the government nevertheless signed it. Now, the government signed a new aviation agreement with China which essentially removes EL AL's monopoly on its lucrative Beijing route. In the past, government officials even awarded contracts to foreign airlines to transport Israeli diplomats. Hence, despite being a "flag carrier" seems to me that the Israeli government has little concern for EL AL's interests.