After near crash, oil price, exchange rate lift El Al

Published date22 March 2023
Now, El Al's position has changed from one extreme to the other. The rapid recovery in the tourism industry after the pandemic died down has brought back the familiar crowding at Ben Gurion Airport, and ticket sales are back to pre-pandemic levels

At the same time, in the past few months the airline has benefitted from two exogenic factors that can be expected to have positive effects on its first quarter results: the weakening of the shekel against the US dollar; and the plunging price of oil.

To some extent, this is already priced into the company's stock, which has risen by over 20% so far this year, giving El Al a market cap of some NIS 750 million.

The fall in the oil price is, as mentioned, one of the factors supporting El Al's share price, because of the expected effect on the company's jet fuel costs. Last year, El Al paid $584 million for jet fuel, representing 35% of its operating expenses.

The price of a barrel of oil is currently $68, down 35% within a year. The oil price shot up last year following Russia's invasion of Ukraine, raising the fear that global sales of Russian oil would be restricted, but it has since declined. One of the causes of the decline is greater oil production in the US.

10% rise in shekel-dollar rate brings in $11 million

Another element helping El Al's financial performance is the weakening of the shekel against the US dollar. The company sells tickets in dollars, but most of its expenses are in shekels. Last year, El Al's employee compensation expense was $360 million, about a fifth of its total operating expenses of $1.68 billion.

El Al's financials note the effect of changes in the shekel-dollar exchange rate on its shekel-denominated costs: a 10% rise in the rate means an $11 million gain for the company, mainly from revaluation of commitments to employees. The shekel has weakened against the dollar by about 4% so far this year, and by 13% in the past twelve months, to a current rate of around NIS 3.66/$.

Sharp cut in headcount

El Al's recently released financials for 2022 show a switch to profit. Besides the factors already mentioned, this is also thanks to a deep cut in the company's workforce during the pandemic, from 6,300 employees at the end of 2019 to 4,500 at the end of 2022.

Meanwhile, revenue more than doubled year-on-year, and the bottom line was a $109 million net profit. In 2020 and 2021, the airline posted a cumulative net loss of nearly $1 billion.

The company, headed by Dina Ben-Tal Ganancia...

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