El AL in France Best in France Case Study September 2004 Group BS2: Sylvie Hellmann, Astrid Enge, Andres Weil, Rick Banerjee
The Company • What is El Al’s business? It is an Israeli airline linking Israel to several key destinations around the world. • What are its key figures ?(world sales, France sales, profits, market share etc. ) • El Al global revenues 2004: 1 billion $ • El Al global profit 2004: 67 million $ • El Al France revenues: 40 million $ • Passengers (scheduled and charter): 2 725 000 in 2002 • When did El Al come to France? El AL came to France in 1948, date of creation of Israeli state
The Product • How many flights are there to France? From France, flights are only to Tel Aviv: 3 flights a day from Paris and 2 flights a day from Marseille. • Why did El Al decide to provide service to France (and not elsewhere for example)? Because of the importance of the Jewish community in France.
The Product • Are there expansion/reduction plans for these product lines? North America Over the past years El Al has expanded its schedule to 38 weekly flights between North America and Israel, its biggest market, from 31 flights. El Al accounts for almost half the country's air travel, the rest divided among Continental Airlines Inc. and several other U.S. and European carriers. However, nowadays no more modifications are forecasted (good frequencies, time table and on-time schedule). Western Europe El Al plans to reopen offices in Scandinavia and further wants to develop the Italian and Spanish market
El Al's clients • Who are the company's clients? Jewish community, business men, tourists, pilgrims, non- Jewish (2-3%) travelers. • What are their expectations? (in order of importance) Security: Many controls and interviews, checking all bags (pilots and technicians graduated from Israeli air force, each flight carries an armed air marshal, the cockpits are sealed to protect against attempted intrusions…) Belonging: Feeling of already being in Israel as soon as they board the plane (white jets with the blue Jewish stars emblazoned on their tail) Service: Kosher food, the flight crew speaks Hebrew, it is forbidden to smoke on board Price: Competitive with Air France.
El Al's clients • How will a French presence help or hurt the company's ability to satisfy client demands? French presence helps to satisfy clients’ demands: The ADP, civil aviation, Ministry of Transport collectively helped to bring the level of service requested by passengers by working together with El Al. They ensured that the airports provide adequate requirements requested by El Al as well (especially for security). Consequently, other airline companies are actually reassured when El Al is at the airport because it is an indication that the level of security is high (meeting El Al’s extremely high standards).
Why did El Al enter France? • Company approach to international growth El Al’s policy is to always evaluate international destinations in which demand is sufficiently high, and flights will be profitable. El Al is everywhere in Europe but recently closed some offices in Scandinavia because of low demand. To answer the demand in these countries, El Al proposed vouchers through other companies to carry passengers towards another destination in which El Al has a Sales office and flights.
Why did El Al enter France? • What other destinations did El Al consider? For El Al, the political situation between Israel and Arabic states affects selecting destinations, which is a unique situation compared with other airlines. It is expected once a peace agreement is signed, passenger demand to Israel will certainly increase, resulting in additional destinations and/or frequencies to existing ones. • Why was France a key target location? The French Jewish community is the largest in Europe. It is very well organized in terms of communication through radio, newspapers, synagogues, consistory. Paris is the most important destination after New York.
Company values • What are the core values of the company that may or may not fit with perceived French values? The core values that fit with perceived French values are: • Quality of the service: to satisfy clients’ needs (by providing the highest level of product and service) • Security: at the airport, and during the flight The core value that may not always fit with perceived French values is: • Too high level of security which can leave the impression of being to aggressive, which is not something the French are used to nor appreciate (too many security agents, baggage checks, personal screening) • How did El Al manage to instill its values in the France unit? By building good relationships with local actors such as ADP, civil aviation, other airline companies and explaining the needs for such decisions.
Business Constraints in France • What are the principle constraints the company foresaw before going to France? No specific constraints (they came in 1948) • Did they discover any others? • It is often difficult to reach a prompt consensus with French representatives. Patience is needed as there is always a hierarchy to deal with which delays prompt action. • Labor law constraints: 35 hour work week, as well as strict firing and hiring laws.
Business Constraints in France • Which are the worst constraints? Labor rules are very inflexible. • How do these constraints differ with El Al’s other locations? Labor law is specific to each location, however, The US is an example of a location with flexible labor laws, that are more favorable to the employer.
Adapting to France • What kinds of adaptations did/is the company make/making to its people management systems? Recruitment: For managers, the recruitment process is managed by the Tel Aviv head office. For employees, the hiring process is specific to each country, but the final selection must be confirmed by the head office. In Israel, it is possible to stay in CDD for many years whereas in France the maximum length is 18 months. Compensation: Wages are adapted to comparable levels according to standard of living (expenses etc.) in each country. For example, wages in France are 40% higher than in Israel. Management Development: To promote a manager, the head office must agree to it, and valid reasons and proof of performance must be presented to them. The final decision lies in the head office and not in the country office.
Adapting to France • Adaptations Cont’d Workforce Planning: Each hiring or firing of employees (including CDD, interim and interns) must be validated by the head office. Performance Appraisal: Each manager organizes an interview with his subordinates to evaluate performance. Motivation: If objectives fixed by the Head office are reached, all countries receive a bonus. Therefore, it is a 100% fixed pay. Bonuses are linked to profits of the group and are distributed equally to all commercial agents. Job Description and Assignment: Discussed with the head office for top management and decided by local managers for employees. Communication Policies: Guidelines come from Tel Aviv head office but each policy is adapted locally.
Adapting to France • Adaptations Cont’d International Transfers, Use of Expatriates: For each key managerial position such as Finance Director, Regional Director etc. people are sent as expatriates by Tel Aviv and remain for 5 years. Apartments and specific advantages are offered to them. If they do not achieve their goals, they are sent back to Israel immediately. Training: Proposed only for a specific mission. E.g.: to work as a ‘chef d’escale’
Key Costs • What are the key costs of operating in France that are more or less than operating in other locations? Startup Costs Using an indexed reference, when launching a business in Europe, there are significant startup cost discrepancies among countries in the airline sector. It costs 100 units in Amsterdam, 167 units in Barcelona, 200 units in Belgium and 223 units in Paris. Any or all HR related costs (hiring, paying, training, dismissing, etc.) Hiring costs, dismissing costs, social security costs (congés maladie, etc.), vacations costs (CP) do not exist or are much lower in Israel.
Key Costs • What are the key costs of operating in France that are more or less than operating in other locations? Cont’d Standard operating costs (real estate, travel, taxes, cultural consultants, etc.) • IT costs, work structure organization costs, communication costs (phone, Internet), administrative costs (printer, copiers) • Real estate is particularly high in Paris and in the airport area (600 euros per month per square meter)
Key Cost Constraints • What are the key cost constraints of operating in France that are more or less than operating in other locations? Communication constraints (language, infrastructure, communication costs, etc.) No specific communication constraints. All employees in France speak 2 to 3 languages (English, French, Hebrew) Integration of French managers into global organization This is not an issue as French managers are not used as part of the global organization.
Key Benefits • What are the key benefits of being in France? Primarily, increased market share and profitability Product quality (defect rate, product cost, productivity, design, customer image, etc.) • Very good image of El Al worldwide. • Tagline: ‘El Al Soaring above and beyond’. • People who travel El Al have good reasons. Revenue/profit (revenue/profit per French employee) 69 employees: Average profit is 2000 Euros per employee Lowest is 1600 Euros and the highest is 3400 Euros
Key Benefits • What are the key benefits of being in France? Cont’d Location benefits (transport, time zone, quality of life, employee satisfaction with France, etc.) • El Al showcase location: Excellent Sales office location (35 Bd des Capucines 75002 Paris), but very high rent. • Israeli workers feel at home as they work for El Al. • Quality of life is adequate but wages are low in the airline business even if higher in France compared to other regions El Al is present.
Key Benefits • What are the key benefits of being in France? Cont’d Government assistance El Al was privatized last December and therefore does not receive any specific assistance from Israeli government. Nor do they receive assistance from the French government. Market Potential (product penetration or growth potential, customer demands for cultural adaptation of product(s), launch platform for other European countries, etc.) Market potential depends a lot on political stability in this area. Israel has strong potential and people are very enthusiastic about discovering it, but are still frightened of attacks. These days, market development is more towards South America. In Europe, El Al wishes to re-open Scandinavia and Denmark offices and boost sales in Spain and Italy.
Essential Advice From El Al • What advice do you offer to other companies in this sector concerning about France as a location? Before going to France Gather information about competitors and French regulations Adapting to France Develop good relationships with local contacts. Future investments in Western Europe • Development of e-tickets and a better political situation in Israel may increase sales and therefore increase the number of daily flights to Israel. • Higher use of vouchers to and from destinations in which EL Al has no office, to catch an El Al flight in a city they do serve (similar to Alitalia’s policy).
We Thank • Manager 1: El Grabli Yoram, Financial Director 32 Bd des Capucines 75002 Paris, Email: firstname.lastname@example.org, Telephone: 33 1 44 55 00 33 • Manager 2: Azoulay Brigitte, Human Resources Manager 32 Bd des Capucines 75002 Paris, Email: email@example.com, Telephone: 33 1 44 55 00 07 • Manager 3: Azoulai Guitta, Regional manager for Western Europe and South America Assistant 32 Bd des Capucines 75002 Paris, Email: firstname.lastname@example.org, Telephone: 33 1 44 55 00 07
Bibliography • References: • Documents provided by El Al • Interviews (joined in annex) • Articles from Bloomberg and from the Jewish exchange newspaper • Websites www.elal.co.il www.iata.org
Our Team • Sylvie Hellmann, Résidence Expansiel – 06 22 22 86 76 • Astrid Enge, Résidence Expansiel – 06 66 83 32 65 • Andres Weil, Résidence Expansiel – 06 61 55 54 83 • Rick Banerjee, Résidence Expansiel – 06 61 82 45 67