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CEO Interview - The Best Of The Best

Elyezer Shkedy, CEO and President of El Al

CEO and President of El Al, Elyezer Shkedy explains how  commercial success is only the beginning of the story at the Israeli airline

How has the airline progressed since its privatization in 2003?

I have been here for less than a year but El Al remains an important pillar to the State of Israel. In day-to-day life and in emergency situations, we are the civilian wings of the Jewish nation and the supporters of Israel. El Al must always be an excellent airline, providing quality, safety, and security for our passengers. 

 El Al is a partner in the economic success of Israel as well, focusing a great deal more on the business traveler than we have in the past.

Of course, as a private company, El Al must be profitable and bring the desired returns. We continue to develop in the commercial environment even though we are faced with growing competition and a dynamic industry that constantly challenges us to adapt and change.

How do you marry the political mission with commercial imperatives?

I wouldn’t say we have a political mission. It is more like a deep connection with the nation and the people.

We are always finding new ways of looking at this challenge, but I don’t see it as a conflict. For example, the European ash cloud crisis was just before Israel’s Remembrance Day. We know how important it is for Israelis to be in Israel with their families on this day. So we told all of our customers in Europe that if they could reach one of the five European points in our network that were still open—Madrid, Barcelona, Marseilles, Rome and Athens—we would ensure that they got to Israel regardless of their original itinerary.

It was a complicated mission and we made some hectic arrangements with crew, schedules and planes so that we could provide service from these five points. This undertaking was part of the deep connection we have with the people, and followed the airline’s principle of providing the best possible solutions to our passengers while making commercial sense.

It was a wise move for our future. I looked at this problem from all angles and arrived at the same decision. There was no conflict.

Every airline has its challenges but security must be a big consideration for El Al?

Security is a huge cost for us—about 3-4% of our revenue, which is way more than what any other airline has to invest these days. The Minister of Transportation here has indicated that the government may take responsibility for more of this cost but nothing has been confirmed. It is a problem if one airline has to pay more than others, and our security expenses are far from normal. All I ask for is a level playing field with other carriers. We are moving in the right direction, but we have yet to see the results.

El Al has always been recognized for dealing with exceptional security concerns. Do you see the El Al security level eventually becoming the world norm?

You cannot ignore the fact that terrorism is here. I can’t forecast what will happen in future but, if terrorism continues to grow as a security challenge for airlines, we will have to strengthen security in response.

Our regulations and processes have been devised by experts in the field. We constantly review what we do and try to find new methodologies. The various processes, technology, and screening are part of our security strategy. We can save lives with this kind of defensive security. An open and transparent process would defeat the purpose. We maintain flexibility to ensure that the approach matches the situation.

I can’t give away our entire concept, but I can say that intelligence plays a key role. Technology is important, but there is a “soft” aspect that is about understanding the people involved, about knowledge as well as intelligence, and about the combination of security measures. All of our passengers are interviewed individually by trained security agents. This is a good example of where we get a lot of valuable knowledge about our passengers: from conversations and individual observation. This kind of intelligence is critical to meeting today’s challenges.

Apart from security, are there other unique aspects to your operations?

We feel that we are a national symbol. We don’t fly on the Jewish holy day of the Sabbath, which means that our fleet is grounded for about a day and a half each week. We offer only kosher meals on board to ensure that all our passengers feel comfortable. And our approved flight paths on certain routes are not necessarily the most direct. So when we go east, we either start by flying north over Turkey and the Black Sea or south via the Red Sea. That adds flying time and costs, and it affects our ability to be a hub for east-west and north-south connections.

Where is your focus for future markets and growth?

Initially our mission was to connect Jewish communities to Israel. But our market is not limited to that. Our route network extends to five continents with three North American destinations, São Paulo, destinations throughout east and west Europe, four in the Far East, and we go to Africa too.

Tourism is a strong segment for us. Israel is a modern, open country. There are 3,700 years of history to explore, and visitors can touch all the main religions. We have the spiritual, golden city of Jerusalem where Judaism, Christianity and Islam are woven throughout the ancient stones. And the modern, vibrant city of Tel Aviv where you will find beaches, restaurants, and nightlife that compare with any other city in the world. It is a unique combination. We expect 2010 will prove to have been a record year for the number of tourists coming here.

The business sector is equally important. Israel is an export based economy with a growing high-tech sector.  We aim to provide this segment with the key elements they are looking for: the best service, extensive coverage through our codeshare and interline partners, and a competitive frequent flyer program.

As for growth, right now we are emphasizing codeshare relationships. We have a strong, well-established codeshare with American Airlines and we recently signed an interline agreement with JetBlue Airways, which has improved our US coverage. El Al is among the first airlines to sign with JetBlue, and it is developing into something very positive.

We also want to develop our BRIC (Brazil, Russia, India, China) network. We are looking at a codeshare in South America and we hope to reach an agreement in India soon. We already have solid relationships in Russia as we recently signed a codeshare with S7 Airlines. And this year El Al started a codeshare with Air China, which allows us to reach billions of people.

Does the Federal Aviation Administration Category 2 status affect your US codeshares?

The Category 2 status is a result of government inaction and is not a reflection of the airline. El Al recently received the highest ratings from IOSA (IATA Operational Safety Audit) for its evaluation. The Israeli Government is working hard with the Civil Aviation Authority to get back to Category 1 status. I am confident that we will resolve this situation in the near future. But for now it limits us tremendously by preventing us from fully exploiting the possibilities of our codeshare with American Airlines and planning growth in the US market.

Can you combine quality service with your unique operational constraints?

El Al has the best of the best people and that enables us to deliver the best of the best service. There are plenty of people who want to be part of El Al so recruitment is easy. We are one of the strongest brands in Israel, and known throughout the world.

It’s important to have good aircraft, technicians, pilots and suchlike, but it is also important to reach your customers. You have to make them feel at home on the aircraft. We can leverage our brand prestige to bring quality to our services.

El Al now has an agreement with a popular Israeli chef, who will oversee our menus, and we offer wines from award-winning Israeli vineyards. We also signed a deal with a television company to bring customers the most popular Israeli programs.

Duty-free is different now, too. It is more about lifestyle and we have worked with one of the most influential lifestyle leaders in Israel to develop this segment.

Basically, we have signed contracts with some of the finest organizations and people in each area we are involved in. Highly recognized Israeli and international brands are looking to form partnerships with us. This is a reflection of where we are today.

You have a military background and yet you obviously have a strong focus on product. Has the transition been easy?

The air force is the military wings of Israel and now I lead the civilian wings. There are many similarities. Both areas are about having a mission, targets, and the best people. You must understand your mission, you must define your targets, and you must understand your group of people and get them to do what they do best.

There are certain aspects of running an airline that you have to consider. The aircraft you fly is the most important matter. You cannot make a big mistake when buying your aircraft. Fuel represents about 30% of expenses so you must look at ways of containing this cost through technology, refining operations, and hedging. And then you must have a commercial strategy. This can vary for each season and product. We spend a lot of money investigating this area. Recently, we decided to expand our cargo service. We now have a route to the Far East that shows great potential.

Did anything surprise you about El Al when you took over?

My wife thought that I was busy and committed as the Israeli air force Commander, but I work just as many hours now! Perhaps the people in El Al surprised me. They are so committed to our airline, and they are all ambassadors for El Al. This is not always the case in a civilian atmosphere but it is the case here.

What would you like to change at El Al?

Change is an ongoing process. In each and every area, we have put down markers and are moving in the right direction. Government regulation is obviously a big concern—we have to negotiate on taxes and we must resolve the FAA Category 2 issue. And I hope we are in a different position, economically speaking. The last couple of years haven’t been great, but we did better in 2010 and we want to continue that.

The long-term vision that will take us forward is based on investing in the right growth engines. El Al is small enough to adapt quickly and to capitalize on our areas of expertise. Running an airline is a complicated business. To deal with complexity, we need to stay focused on the challenge at hand. There is nothing wrong with trying something new and assessing it. If we don’t change, we cannot succeed.

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