Foreign airlines stay away amid local squabbles

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The failure to amend the law on flight cancelation compensation and reopen Terminal 1 are deterring foreign airlines from resuming Israel flights.

Despite the ceasefire in the north, less than ten foreign airlines have announced the resumption of Israel flights. There are several obstacles that the foreign airlines want removed before they return.

This leaves Israel's aviation and tourism sector mired in a deep crisis and there appears to be no solution on the horizon. Meanwhile airfares remain much higher than in recent years, and those wanting to travel between Israel and the US must either wait several months or pay thousands of dollars for a seat.

Obstacle 1: Exemption from paying compensation for flight cancelations

Several foreign and Israeli airlines are demanding temporary relief from the "Tibi Law," which was promoted by MK Ahmed Tibi and grants passengers the right to compensation for delayed, postponed and canceled flights.

This campaign by the airlines has gained some ground and led to significant progress in the legislative process. However, this week the final version of an amendment reached the Knesset Economics Committee headed by MK David Bitan (Likud), where it stalled. Bitan, for his part, claims that he is not interested in harming consumers, and that it is better to find other solutions that will provide incentives to companies.

In practice, the decision not to intervene has hurt consumers no less. Options for flying to and from Israel have been significantly reduced, and this not only affects the tourism industry but also the ability to travel in emergency situations and to maintain overseas business ties in sectors of the economy, such as high-tech, for example. Fares, as is customary in a free market, climb when supply is low and demand is high.

For example, Irish low-cost airline Ryanair, which had already resumed Israel flights during an earlier stage of the war and but halted them following the escalation in the north, refuses to return without changing the "Tibi Law." The airline recently revealed that it has been forced to pay €4 million as a result of the "Tibi Law."

Second obstacle: Terminal 1 closure and higher fees

Ryanair has not been deterred from returning to Israel by the compensation law alone. The closure of Ben Gurion airport's Terminal 1 also affects all low-cost airlines because the landing fees there are much lower than in Terminal 3 used by the legacy airlines. The lower fees in Terminal 1 stem from the services provided by the Israel Airports Authority, including the size of the duty-free stores and the passenger lounge. Some in the industry reject this excuse, since the additional costs are passed on to passengers, and are small amounts of less than $20.

Low-cost airlines, on the other hand, have been outraged by the decision. The costs are indeed included in the tickets marketed to passengers. But when a ticket is normally low-priced, the added cost harms marketing and their competitive ability against the legacy airlines and increases ticket prices, especially the cheapest ones, by tens of percent. On the other hand, this has not stopped low-cost airline Wizz Air, from gradually resuming operations in Israel over the coming month.

Israel Airports Authority said, "Speaking to representatives of about 100 foreign airlines, it was stressed that the Authority will do everything possible to assist other companies to return to operations in Israel, including reopening Terminal 1, if the low-cost airlines commit to a continuous return to Israel, and on a significant scale."

Third obstacle: Israelis oppose relief for foreign airlines

MK Bitan, as mentoined, wants to exhaust other options before changing legislation that would supposedly harm consumers. To that end, he proposes that low-cost airlines like Ryanair that fly to Terminal 3 pay a reduced fee - similar to the one they paid at Terminal 1. But either the Ministry of Finance or Israel Airports Authority would be required to finance the shortfall.

Israel Airports Authority (IAA) director general Sharon Kedmi told the Knesset Economics Committee that the IAA has a negative cash flow of NIS 1.2 billion and an operating loss of NIS 150 million. The losses stem from the dramatic decline in passenger traffic over the past year. In a normal year, about 24 million passengers pass through Ben Gurion airport, and the expected decline this year to 14-16 million is considered significant, especially considering that the country is at war.

The IAA would prefer to see the Ministry of Finance, which in past crises has put its hand in its pocket, pay the difference. Bitan called on the Ministries of Finance and Transport to finance the reduced fees for the foreign low-cost airlines. The Ministry of Finance objected and Bitan announced that the committee would not proceed with the amendment to the "Tibi Law."

Bitan's proposal was also opposed by the Israeli airlines. They have no problem in principle with the move, as long as they also benefit from the reduced fees. The Israeli airlines claim that otherwise there would be an unjustified harm to competition and the principle of equality and added that such a situation would create a distortion that would reward the foreign airlines that abandoned Israel during the war. Bitan was angered by the position of the Israeli airlines. "It is shameful and arrogant to make such claims, you cannot enjoy the profits of the war and now also ask for equality. This is unacceptable to me," he said.

Published by Globes, Israel business news - en.globes.co.il - on December 11, 2024

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