El Al Israel Airlines reports its financial results for 2018 and fourth quarter 2018, Boeing 747-400s to be retired

El Al Israel Airlines issued this reported today:

• Despite the increased competition at Ben Gurion Airport, the Company’s (TASE: ELAL) revenues from passenger increased by approx. USD $54 million.
• However, in view of the increase in fuel prices, the Company lost approximately USD $52 million in 2018.
• The Company’s revenues for 2018 amounted to approx. USD $2,142 million compared to approx. USD $2,097 million last year (reflecting an increase of USD $45 million).
• The Company’s revenues for the fourth quarter of 2018 amounted to approx. $493 million compared to approx. USD $512 million for the fourth quarter of 2017 (reflecting a decrease of USD $19 million).
• The Company recorded a loss before tax of approx. USD $68 million and a net loss of approx. USD $52 million for 2018 (compared to a profit before tax of USD $9 million and a net profit of USD $6 million for 2017, respectively).
• The Company recorded a loss before tax of USD $41 million and a net loss of USD $32 million for the fourth quarter of 2018 (compared to a loss before tax of USD $38 million and a net loss of USD $30 million for the fourth quarter of 2017, respectively).

Gonen Usishkin, El Al’s CEO:

“Following the continued implementation of the Open Sky policy, in 2018 the competition at Ben Gurion Airport intensified, with an emphasis on European and Far East airlines. The number of passengers passing through Ben Gurion Airport grew from 20.2 million to 22.3 million. Particularly conspicuous is the Government’s decision to allow Air India to fly over Saudi Arabia using a short route, whereas the Company is not allowed to fly this route, thereby eroding the Company’s profitability from this route.

Notwithstanding the competition, the Company maintained a Load Factor of 84% and increased its revenues from passengers by USD 54 million. This year, a number of factors were joined together, in particular an approx. 30% increase in fuel prices (reflecting an expenditure increase of USD $97 million), which caused the said loss.

Upon completion of replacing the 767 and 747 aircrafts with the Dreamliners, the Company will be able to realize its operational efficiency potential (pilot expenses, saving fuel consumption and maintenance expenses) and significantly contribute to improve the product and upgrade the customer experience, alongside other steps taken by the Company.

Despite the results, the Company is in the process of implementing its business plan, and this is the place to thank all the Company’s employees who make effort to return El Al to profitability, improve all operational parameters and provide excellent service to its customers.”

In order to improve its business results, the Company established a strategic plan focusing on four core areas of operations:

The Company’s activities to improve the product and customer experience

The Company is going through a strategic process of improving customer experience and, for this purpose, invests considerable resources in most areas of operations, by means of the following activities:

• Receiving five 787-9 Dreamliners. As of today, the Company operates eight 787-9 aircrafts.
• Closing the 767 aircraft fleet, having been in the Company’s service for 36 years.
• Launching a fast WI-FI system. Currently, the Company operates 18 airplanes with an internet system.
• Recruiting the Michelin Star chef, Shahaf Shabtai, to act as the Company’s chef. Chef Shabtai devised a new high quality menu dedicated to El Al.

The Company’s activities in the commercial area

The Company continues to develop a route network adapted to the Israeli passenger and offers new products to the market, as follows:

• Launching the route to Lisbon, adding activities on selected routes (such as Newark) and refreshing SunDor route network (both routine and seasonal activity).
• Expanding the route network through new codeshare agreements with Vietnam Airlines and LOT (in early 2019) and expanding agreements with other airlines.
• Launching price categories adapted to passengers flying to Europe, the Far East and Africa.
• Extending the Branded Credit Card (FlyCard) Cooperation Agreement entered into with CAL, Diners and Poalim Express, and adding a new strategic partner – Mastercard.

The Company’s activities in the operational area

The Company is acting to strengthen its competitiveness through streamlining alongside improving operational excellence:

• In 2018, the Company launched the “Ofek 2021” Program, aiming to enhance income resources while improving and streamlining operational processes within the Company.
• The Company is in a multi-year process of replacing several operational and commercial IT systems, and this year successfully completed the implementation of a passenger revenue management system, automated marketing system and payroll system.
• The Company has successfully implemented the new Flight Time Limitation regulations (FTL).

The Company’s Activities relating to people and processes

Investing in the Company’s personnel and the community contributes to the stability of the organization and forms a strategic basis for improving customer experience:

• Stabilizing labor relations following the agreement entered into with the Company’s pilots, enabling operational efficiency and flexibility vis-à-vis pilots’ lifestyle, as well as optimal planning for aircrew personnel.
• El Al takes particular pride in its PL+ rating assigned to it by “Ma’ala”, following an extensive activity for the community, inter alia, by raising money on flights for the benefit of “ALUT ALE” organization, adopting the Paratroopers Battalion 202, volunteering activities for the benefit of the IDF Disabled Veterans Organization, “Krembo Wings”, children with cancer, holocaust survivors, children communities across Israel, and more.

Focus in 2019 onwards

The Company has reported in the past a number of initiatives to enhance income and reduce expenses, along with actions intended to improve operational excellence:

• Receipt of six additional 787 aircrafts (a total of 14 aircrafts by the end of 2019) to significantly improve the product and customer experience. The Company expects that by the end of 2019, the average age of the aircraft fleet will decrease for the first time below 10 years.
• Closing the 747-400 aircraft fleet.
• Additional expansion of the route network; by adding new routes to San Francisco, Las Vegas, Manchester and Niece, alongside expansion of existing routes.
• Preparations for opening a route to Chicago in 2020.
• Expansion of cargo transport in the belly of the 787 aircrafts.
• A full-fleet interior renovation of the 737-800 aircraft fleet, including replacement of seats, improvement of luggage storage areas and replacement of interior lighting.
• Start a project of renewal interior renovation of 777-200ER aircraft fleet, including replacement of seats, entertainment system, installation of WI-FI system and renovation of the overall appearance of the aircraft cabin.
• Update to the Frequent Flyer Club program and upgrade of internet and mobile digital platforms.
• Modification of the model of compensation to travel agents.
• Expansion of activities under the “Ofek 2021” program, inter alia, the chain of logistics, maintenance array and passenger service.
• Implementation of the collaboration agreement with CAL, Diners, Poalim Express and Mastercard.