El Al Begins Turnaround

Share at Ben Gurion Airport Rises

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El Al reported quarterly results for the third quarter this past week, as a result of which, the airline’s stock dropped. The stock market viewed the decline in profits for Q3 (typically El Al’s most profitable quarter) and sold off the airline’s stock. However, I believe the market may have reached the wrong conclusions. While El Al’s profits had gone down, something else happened as well. El Al’s passenger roster rose 6% year-to-year — and for the first time in years, El Al’s percent of passengers carried through Ben Gurion Airport went up. 

It would seem that El Al’s plan to completely remake its fleet has begun to have the desired effect. Over the past few months, the last of El Al’s 747 passenger planes have been retired, as it received continued deliveries of 787s. It has now restocked its fleet with twelve 787-9 planes, and will receive its four 787-8 aircraft during the first half of 2020. The El Al fleet has been transformed from one of the oldest in the aviation industry into one of the youngest. El Al now flies only 787s and 737s. The result seems to be that passengers are returning to El Al. Israelis who were tired of flying in older aircraft, without modern amenities, are now once again flying El Al. Thanks to the better fuel efficiency of the 787, the shift to a top of the line fleet will eventually also improve El Al’s bottom line. 

Here are the financial results as reported by El Al:

For the third quarter of 2019, El Al reports a growth of 8% in seat availability, an increase of 6.5% in passenger traffic and an increase of 2% in market share.

At the end of the third quarter, 12 new 787-9 Dreamliner aircraft operated in El Al’s fleet. Four additional 787-8 aircraft will be added to El Al’s aircraft fleet by the end of the first quarter of 2020, thereby El Al expects to complete the Acquisition Program.

Despite the competition, El Al’s revenues increased to approximately USD 647 million.

Operating expenses for the quarter amounted to approximately USD 505 million, similarly to the third quarter of 2018, despite the 8% growth in Available Seat per Kilometer (ASK).

Fuel expenses decreased by approximately USD 13.5 million, both as a result of the decrease in jet fuel market prices and as a result of using the new efficient 787-9 aircraft.

Other income amounted to approximately USD 5.5 million for the quarter, due to the sale of one 767-300 aircraft which was removed from service, compared to an income of approximately USD 10 million for the third quarter of 2018, mainly from insurance receipts.

Profit before tax was adversely affected by approximately USD 4.5 million due to the implementation of the accounting standard IFRS 16 that increased the financing expenses by approximately USD 12.5 million and reduced the operating expenses by approximately USD 8 million.

Profit before tax for the quarter amounted to approximately USD 35 million, compared to a profit before tax of approximately USD 54 million for the third quarter of 2018. The profit was affected by an increase in financing expenses as well as an increase in payroll expenses, mainly due to a decrease in the discount interest rate on actuarial liabilities.

Net profit for the quarter amounted to approximately USD 27 million, compared to net profit of USD 42 million for the third quarter of 2018.

EBITDAR for the quarter amounted to approximately USD 140 million, similarly to the third quarter of 2018.

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