EL AL is facing a class action lawsuit, as it’s being accused of wartime price gouging. Is this just basic economics, or is it immoral and illegal, as the lawsuit suggests?
EL AL accused of exploiting monopolistic position
This week, a class action lawsuit was filed against EL AL in Israel, accusing the airline of significantly raising fares since October 2023, following the Hamas terror attacks, plus subsequent conflict between Israel and Palestine.
The lawsuit argues that once most foreign airlines ceased flying to Israel due to the war, EL AL became the dominant carrier, and used its monopoly status to raise prices. The lawsuit claims this is both immoral and illegal, and accuses the airline of taking advantage of a tragedy to generate massive profits.
The lawsuit is supported by an economic analysis from a former commissioner for competition, who stated that in 20 of the 24 examined routes, EL AL held a dominant market position, and he concluded that price hikes were not justified by any rise in operational costs.
An analysis showed that in 2024, the airline increased prices by an average of 14.2% compared to the previous year. The analysis claims that costs decreased while profits soared. The airline reported a $554 million profit in 2024, compared to a $113 million profit in 2023. The company’s stock price increased, the CEO got a big bonus, and employees even received $103 million in bonuses.
The lawsuit claims that these price hikes not only hurt consumers, but also undermine social solidarity during a time of crisis. The lawsuit calls on the court to order compensation for affected passengers, to deter similar abuses of monopolistic power in the future.
EL AL is now being investigated by the Competition Authority and the Consumer Protection and Fair Trade Authority, with a push for “excess profits” to be returned to the public.
Has EL AL been price gouging consumers?
I’m kind of conflicted regarding the merits of this lawsuit, and I think this sums up so many aspects of what confuses people about airline pricing.
To start, it’s worth acknowledging that war has been very good for EL AL’s bottom line. Ordinarily, unrest wouldn’t give a particular airline an advantage, but EL AL is in a unique position. The carrier’s planes are specially equipped with extra security equipment, and the airline is happy to fly through basically any conflict.
So while supply and demand and general safety concerns usually dictate which routes airlines can fly, EL AL really is in a league of its own when it comes to “owning” a market in times of unrest.
As far as price gouging goes, and the claims in the lawsuit, a few things come to mind. For one, the cost of airfare has never been based on the operational costs, so I don’t find that to be a good argument. Pricing has always been based on what the market will bear. That’s why in the United States, airlines frequently have a higher cost per air seat mile than they have revenue per air seat mile. It’s also why you might find a 2,000-mile flight that costs $100, while a 200-mile flight might cost $300.
With other airlines having pulled out of Israel, obviously demand for EL AL flights increased massively, so there are different ways the airline could handle that. Given the position EL AL was in, fares increasing by 14.2% from 2023 to 2024 hardly seems like that big of a jump, when an airline has a market all to itself, and deals with massively increased demand.
I guess this also raises the question of what a “fair” profit is for an airline. We’re talking about a publicly traded company here that isn’t owned by the government, so is the obligation to provide transportation at a reasonable cost, or to maximize shareholder value? If the economy turns bad and the airline loses money and can’t charge higher fares, should the government guarantee a certain amount of profit, to make up for any shortfall compared to operational costs?
Ultimately I’m not a lawyer, and don’t have a deep understanding of Israeli law, so I can’t speak to the legal merit of this. However, I do think that you can’t really compare the fluctuation in the price of airline tickets to the fluctuation in the price of basic household needs, given the very different pricing models.
Bottom line
EL AL is being sued in Israel for wartime price gouging, with a lawsuit calling the carrier’s actions both illegal and immoral. EL AL is accused of raising prices when other airlines pulled out of the country, in order to achieve record profits.
There’s no denying that war has been good for EL AL, due to the carrier’s unique ability to continue operating flights when other airlines couldn’t. In 2024, the airline reportedly raised fares an average of 14.2%. Is that price gouging, or just a reasonable fare increase to reflect decreased supply? I guess that’s up to a court to decide…
What do you make of this lawsuit against EL AL?
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