Daniel's prompt this week is basically a stress test of what happens when a country's last operating airline becomes its only operating airline. He's looking at El Al after October seventh, when foreign carriers pulled out of Israel and left one company flying — and he's got four questions. One, did El Al price-gouge or was this rational scarcity pricing? Two, what did the monopoly actually mean for ordinary travelers, especially on the New York route? Three, what does TechAir — this quasi-airline organized by tech executives — tell us about how broken things got? And four, what should Israel actually do about it? Fine, subsidize, regulate, or accept wartime pricing as inevitable?
So let's start with the numbers the regulator put on the table, because they're the foundation of everything else. The Israel Competition Authority says that between October seventh twenty twenty-three and the end of May twenty twenty-four, El Al raised Economy and Premium fares by about sixteen percent on average. Individual major routes saw increases from six percent to thirty-one percent. And here's the detail that's hardest for El Al to explain away — even on flights departing below eighty-five percent occupancy, meaning empty seats existed, fares were about twenty-five percent higher than pre-war. The proposed fine is a hundred and twenty-one point eight million shekels. That's the maximum legal penalty, and it's unusually aggressive by Israeli standards. Excessive-pricing enforcement has historically been rare here.
A hundred and twenty-one million shekels is not a parking ticket. That's the regulator saying something systematic happened, not a few bad weeks of surge pricing. But I want to pause on that eighty-five percent occupancy figure, because I think it's the smoking gun in this whole case. If I'm understanding correctly, the regulator is saying: look, the plane wasn't even full, and you were still charging twenty-five percent more than pre-war. That's not supply and demand — that's something else.
That's exactly the point. In a genuine supply shock, you'd expect planes to be packed. Every seat filled, and still prices rising because demand exceeds available capacity. That's classic scarcity. But if fifteen percent of seats are going out empty and prices are still elevated, the airline is choosing to leave money on the table in terms of load factor in order to maintain a higher yield per passenger. It's optimizing for revenue per seat rather than total passengers carried.
Which is what any business does normally. But normally there are competitors.
Normally there are competitors, and if you try that, someone else fills their plane at a slightly lower price and takes your passengers. Here, there was no one else. So the algorithm could optimize for yield without the usual competitive constraint. It's not that the algorithm changed — it's that the market structure changed around it.
Right. And El Al's counter-position is worth taking seriously. They kept operating through a war when others wouldn't. They faced extraordinary security costs, insurance premiums that reportedly tripled or worse, operational risks that United and Delta and Lufthansa simply declined to accept. They didn't cause those carriers to withdraw — that was each airline's own commercial and security calculus. The question is whether a sixteen percent average increase reflects profiteering or the genuine cost of being the last airline flying into a war zone.
And I want to dig into those insurance premiums, because I think they're worth understanding. Aviation war-risk insurance is a specialized market. When a conflict zone is active, insurers reassess the risk of aircraft damage on the ground, missile strikes near airports, and crew safety. After October seventh, premiums for operating into Tel Aviv reportedly tripled. For some carriers, they couldn't get coverage at any price. So El Al's cost base shifted upward. The question is by how much, and whether sixteen percent covers that or exceeds it.
Do we know the answer?
We don't. And that's one of the frustrations of this case from the outside. The regulator's analysis focuses on prices and market structure. El Al hasn't publicly broken out its incremental war-related costs in a way that would let us do the math. They've cited increased costs as a defense, but without the line items.
So we're arguing about the numerator without seeing the denominator.
And that makes it hard to adjudicate the fairness question from public data alone. The regulator presumably has more access, but we're operating on what's been released.
So the central tension is this. El Al arguably provided an essential national service by continuing to fly. But precisely because it kept flying, it acquired extraordinary power over a captive population. Can both things be true?
That's exactly the paradox. And I don't think you can answer it without understanding what scarcity pricing actually looks like when there's no land-based substitute. Israel has no practical overland exit. There's no train to Europe, no bus to Jordan that replaces a transatlantic flight. For Israelis, international air travel isn't a luxury — it's the only way to leave or enter the country. That makes the demand curve unusually inelastic.
Inelastic meaning... people will pay almost anything because the alternative is not going.
Wait, no. Let me rephrase. Inelastic means the quantity demanded doesn't drop much when price rises. If you need to get to a funeral, a medical appointment, a business meeting, or just to see family abroad, and the only airline flying is charging two thousand five hundred dollars for a seat that cost a thousand a year ago... you pay it. Or you don't go. There's no third option.
And that's the thing that I think is hard to appreciate if you live in a continentally connected country. If you're in Germany and flights get expensive, you can drive to France and fly from there. You can take a train. Israelis can't. The airport is the only door.
It's a geographic fact that creates a unique vulnerability. Israel has land borders with Egypt, Jordan, Lebanon, and Syria. You can cross into Jordan and fly from Aman — and some people did during this period. But that adds hours of travel, border crossings, and its own complications. For most travelers, Ben Gurion is the only practical option. And when there's only one airline operating from Ben Gurion, that airline effectively controls the country's physical connection to the rest of the world.
And that's the thing. The feeling of being held hostage — that's not just consumer complaint language. It's a pretty precise description of what a monopoly on an essential service with no substitutes actually feels like.
The economics are straightforward. When demand is inelastic and supply collapses, the profit-maximizing price rises sharply. The question is whether there's a ceiling beyond which it becomes exploitative rather than efficient. And that's where the twenty-five percent increase on flights with empty seats becomes the hardest data point for El Al to explain away. If seats were going unfilled, the airline wasn't capacity-constrained. It was choosing not to lower prices to fill them.
Walk me through the possible justifications for that. Because I can imagine an airline executive saying something like, look, we have fixed costs, we have to cover our nut, and dropping prices to fill the last fifteen percent of seats doesn't actually help if it cannibalizes the revenue from the other eighty-five percent.
There are a few defenses. One, dynamic pricing algorithms optimizing for yield rather than load factor — the system thinks it can make more money selling fewer seats at higher prices than filling the plane. Two, expectation that last-minute demand from desperate travelers will materialize — and in a war, that's not irrational. Three, a deliberate strategy to keep prices high to signal... I don't know, premium positioning even during a crisis. None of these are obviously illegal, but they undermine the pure scarcity defense. If you have empty seats and you're still charging twenty-five percent more, you're not responding to a capacity shortage. You're managing revenue.
So the algorithm is doing what it's designed to do, and the question is whether what it's designed to do becomes abusive when the market shrinks to one seller.
That's exactly the legal question. And Israel's standard for what counts as unfairly high prices is... underdeveloped. The regulator is essentially arguing that a sixteen percent average increase, and much higher spikes on specific routes, exceeds what a competitive market would have produced, and that El Al's dominance was the cause. They're building a test case.
How have other jurisdictions handled this? I'm thinking of cases where a natural disaster or a crisis creates a temporary monopoly, and the question is whether the law treats that differently from normal market dominance.
The US Department of Transportation scrutinized domestic fare spikes after nine-eleven and during natural disasters — hurricane evacuations, that kind of thing. They have a specific legal framework for price gouging during declared emergencies, though it's more developed for things like gasoline and water than airline tickets. The EU has rules on excessive pricing by dominant firms under Article one-oh-two of the Treaty on the Functioning of the European Union, and they've used them — there was a case against a Latvian collecting society that charged unfairly high royalties, and the European Court of Justice developed a two-step test. First, is the difference between cost and price excessive? Second, is the price unfair in itself or compared to competitors? But the Israeli framework is less tested. This fine is the Competition Authority saying we're going to set a precedent.
So there's a global playbook, but Israel hasn't really written its own chapter yet.
And that's part of why this case matters beyond the immediate facts. It's going to define what excessive pricing means in Israeli competition law for years.
So those are the numbers and the framework. But what did this actually mean for someone trying to book a flight to New York? That route is basically the natural experiment here. It's the busiest international route from Israel, it's the one where the competitive dynamics are clearest, and it's where the price swings were most extreme.
Let me lay out the timeline because it's almost a controlled experiment in antitrust economics. Pre-war, a round trip to New York — attainable at a thousand to twelve hundred dollars. By February twenty twenty-five, ordinary direct round-trip fares were fifteen hundred to two thousand plus. During Passover, El Al had no Economy availability on some dates, and remaining fares started around twenty-three hundred. Then summer twenty twenty-five, after the Iran war and airspace reopening — Economy rose from about fifteen thirty in early July to twenty-six sixty-six by end of July. By August, Premium tickets were being offered at thirty-six fifty to forty sixty. Forty-six hundred dollars to sit in a slightly wider seat for eleven hours.
Forty-six hundred dollars for Premium Economy to New York. That's... that's a used car. That's a functioning Honda Civic with a hundred thousand miles on it.
It's a used car. And the thing is, Premium Economy on this route isn't a lie-flat seat. It's not business class. It's a few extra inches of legroom and maybe a slightly better meal. For forty-six hundred dollars. And then — this is the part that makes the case — as foreign competition began returning, direct New York fares fell back toward eleven hundred to twelve hundred dollars. Roughly half the shortage-era levels. When United and Delta came back, the price collapsed. That's not a coincidence.
Half. The same route, the same airline, the same seats — half the price once there was someone else flying it. That's not a subtle market signal. That's a billboard saying market power was the driver.
And the consumer experience here isn't just about the percentage increase. It's about the fact that Israelis had no alternative. If you need to get to a funeral or a medical appointment and the only airline flying is charging twenty-five hundred dollars for a seat that cost a thousand a year ago... the anger is real. And it's amplified by the knowledge that El Al was simultaneously running ads emphasizing its national role and patriotism. There's a tension between we are the national carrier keeping Israel connected and we are charging you double for the privilege.
The ads said we're here for you. The price tag said we know you have no choice. And I think that gap is what made people so furious. It's not just the number on the screen. It's the feeling that the same company that's wrapping itself in the flag is also emptying your wallet because it can.
And that's what generated the public anger. Not just the number — the gap between the messaging and the bill. There were Kneset hearings. There was media coverage that was absolutely brutal. El Al's brand, which had been strengthened by the fact that they kept flying when others didn't, took a real hit. And I think that's worth noting — reputational damage is a real cost, even if it doesn't show up in the regulator's fine.
So the market produced extreme prices. But it also produced something remarkable. Tell me about TechAir.
TechAir is... it's one of those stories that sounds made up. A group of Israeli technology executives and investors got sufficiently frustrated by the lack of US service and high prices that they said — we will organize additional aircraft capacity ourselves. They didn't become a conventional airline. They partnered with Arkia, leased Airbus A three-thirty capacity, and launched three weekly New York flights in February twenty twenty-five. Round-trip Economy starting at eleven ninety-nine, including baggage and meals.
Eleven ninety-nine. While El Al was charging twenty-three hundred plus for Passover. So TechAir was offering essentially the pre-war price while the incumbent was charging double. How does that even work as a business model?
It works because they weren't trying to build an airline. They were trying to solve a specific problem for a specific period. The tech executives involved — and we're talking about people from companies like Wix and Papaya Global and other Israeli tech firms — they had employees who needed to travel. They had business that required connectivity to the US. And they looked at the market and said, this is broken, we can charter capacity and sell the extra seats. It was almost a civic project disguised as a business.
So it's not that they thought they could outcompete El Al long-term. It's that the gap between what the market needed and what the market was providing was so large that even a temporary, scrappy solution was viable.
That's the thing. Is TechAir an impressive private-market response to scarcity, or is the fact that businesspeople felt compelled to create a quasi-airline itself evidence of market failure? I think it's both. It shows entrepreneurship filling a gap — impressive. But the fact that a gap of this size existed, and that it took a startup airline to address it, suggests the normal competitive mechanisms were not working.
If the market was working, you wouldn't need venture capitalists to charter planes so people could afford to visit their families. The fact that the most rational response for a group of tech CEOs was to say, fine, we'll start an airline — that's not a sign of a healthy market. That's a sign of a market so broken that the only solution was to bypass it entirely.
Right. And look at what happened as competition returned. Arkia initially sold some Passover New York tickets for around twenty-three ninety-eight. After United and Delta began returning, it cut April fares sharply — competing round trips appeared around eight seventy-eight to ten thirty-five. That's the natural experiment. More capacity, prices halve.
Eight seventy-eight dollars to New York round trip. That's less than the pre-war attainable fare on some bookings. The market didn't just correct — it overcorrected once capacity came back. Which tells you that the shortage-era prices weren't anchored to some new reality about the cost of flying. They were anchored to what the market would bear when there was no alternative.
Which suggests the shortage-era prices weren't reflecting some new permanent cost structure. They were reflecting market power. If the costs had risen by fifty percent, you wouldn't see prices fall below pre-war levels when competition returned. You'd see them settle at a new, higher equilibrium. The fact that they dropped below pre-war levels tells you the elevated prices during the shortage were mostly about market structure, not costs.
That's a really important point. The return to competition didn't just bring prices down — it brought them down below where they started. That's not a cost story. That's a competition story.
It's almost a textbook demonstration of what happens when a monopoly ends. Prices don't just normalize — they can undershoot as competitors fight for market share.
If the market produced both extreme prices and an entrepreneurial response, what should Israel actually do about this? That's where things get complicated. Because the solutions all have tradeoffs, and none of them are clean.
Let's walk through the options. Option A — the Competition Authority's proposed fine. A hundred and twenty-one point eight million shekels, maximum legal penalty. It's retrospective punishment. It may deter future abuse, but it does nothing for consumers who already paid inflated fares. Those passengers aren't getting refunds. The fine goes to the state, not to the people who paid forty-six hundred dollars for Premium Economy.
It's a signal, not a remedy. And you could argue that signals matter — that the next time there's a crisis, El Al's pricing team will have this fine in the back of their minds. But that's cold comfort to someone who drained their savings to attend a family wedding in New York.
Option B — subsidizing emergency foreign-airline service during future crises. Essentially paying United, Delta, or Lufthansa to keep flying into Israel even when it's commercially unattractive. That's expensive, and it raises its own questions — are you subsidizing foreign corporations to compete with your own national carrier? What's the political optics of cutting a check to Delta while El Al is actually flying the routes?
You're paying them to take a risk they already decided wasn't worth taking. That's not nothing. You're essentially saying, we'll socialize your war risk so that you'll keep serving our market. That's a legitimate policy choice — lots of countries subsidize essential air service to remote regions. But doing it for a major international route during a war is a different order of magnitude.
Option C — temporary pricing constraints on dominant carriers during declared emergencies. A wartime price cap. The problem is that if you cap prices below cost, the carrier stops flying. Then you have no one. The cap has to be set at a level that covers genuine cost increases plus some reasonable return, and defining that in real time during a war is... administratively nightmarish. You're asking regulators to audit an airline's cost structure while rockets are falling and the security situation is changing daily.
You'd be litigating the cost structure of an airline while rockets are falling. That's not a regulatory process, that's a fantasy. And even if you could do it, the airline would dispute every cost allocation. Is that security surcharge really incremental, or is it part of their baseline operations? Is that insurance premium war-related, or is it opportunistic pricing by the insurer? You'd need an army of forensic accountants working in real time.
Option D — requiring greater transparency from dominant carriers about pricing algorithms and capacity allocation. This is interesting. The regulator's data shows the twenty-five percent increase on sub-eighty-five percent occupancy flights. If the algorithm's logic were visible, you could at least distinguish between cost-driven increases and pure yield optimization. You could see, in something close to real time, whether the airline is covering costs or exploiting market power.
This feels like the most implementable option. You're not capping prices. You're not subsidizing competitors. You're just saying, if you're the last airline flying and you have more than some threshold of market share, you have to show your work. And if the work shows you're optimizing for yield on empty seats while people can't afford to leave the country, that's politically toxic in a way that might actually constrain behavior.
Option E — encourage Arkia, Isrir, and other Israeli carriers to expand international routes so El Al is never again the sole operator on key routes. This seems like the obvious structural fix. You want competition? Create competitors.
It does, but it's slow. Arkia entered the New York market for the first time during this crisis, and that's good — but they're still a small carrier with limited long-haul capacity. They don't have a fleet of wide-body aircraft sitting around. Building out a competitive alternative to El Al on transatlantic routes takes years and enormous capital. And in the meantime, the next crisis could hit next month.
There's a chicken-and-egg problem. Arkia can't justify buying long-haul aircraft for routes that are only viable during crises. They need year-round demand. So you're asking a small carrier to make a bet on a market that El Al already dominates in normal times.
We've got a fine that punishes but doesn't compensate, subsidies that are expensive and weird, price caps that are practically unenforceable, transparency that helps but doesn't solve, and structural fixes that take a decade. None of these is a clean answer.
That brings us back to the central paradox. El Al deserves credit for continuing to fly when much of international aviation abandoned Israel. They kept the country connected during a war. That's real. I don't want to minimize it. The crews who flew those routes, the ground staff who kept operations running — they did something important. But precisely because they kept flying, they acquired extraordinary power over a captive population. Both things are true. And both things have to be held in mind at the same time.
The question is whether Israel's regulatory framework is equipped to handle a situation where the national carrier is simultaneously a heroic lifeline and a monopolist with every incentive to maximize revenue from a trapped customer base. And I think the answer is probably not — not because anyone is evil, but because the system wasn't designed for this scenario.
The answer is probably not. And that's the real lesson here. Israel needs a wartime aviation contingency plan that doesn't rely on the goodwill of a single profit-maximizing firm. Because goodwill and fiducial duty to shareholders point in opposite directions when your customers have nowhere else to go. The CEO of El Al has a legal obligation to act in the interests of shareholders. If acting in the interests of shareholders means charging what the market will bear, and the market will bear a lot because there's no alternative... the CEO doesn't have a choice. The system forces their hand.
The market will sort it out is not sufficient when the market has only one participant. That's the sentence I keep coming back to.
That one participant was also the only thing standing between Israelis and total aviation isolation. That's the paradox. You can't resolve it by saying El Al is good or El Al is bad. You have to build a system that doesn't depend on the virtue of a monopolist. Because even a virtuous monopolist faces structural pressures that push toward exploitation. It's not about individual morality. It's about the architecture of the market.
Hilbert.
Hilbert: I set fares for a charter airline in the early two-thousands. We flew Tel Aviv from... it doesn't matter, the airline's been dead twenty years. But I was the guy who set the price for the last seat on the plane, and I can tell you exactly how that math works.
Hilbert: In two thousand two, two thousand three, the European aviation market was in pieces. We kept flying to Tel Aviv when others pulled out, and we absolutely raised prices. About twenty-two percent on that route. And we were losing money on every flight because our insurance had tripled and we were paying crew double for operating into a conflict zone. The twenty-two percent increase didn't cover our costs. We were bleeding.
Hilbert: When I see a sixteen percent average increase, I don't immediately think gouging. I think — show me the cost side. The regulator's data doesn't have El Al's insurance premiums, their security costs, their crew premiums. That's the missing half of the equation. The twenty-five percent on flights with empty seats — that's harder to explain. But the headline sixteen percent? Without costs, it's just a number floating in space.
Hilbert: We had a button in our system. Compassionate override. If someone called in with a family emergency or a medical need, we could override the algorithm and give them a fare that didn't reflect what the market would bear. It wasn't policy exactly — it was a code the supervisors had. You typed in a reason and you gave them a fare. I don't know if El Al has that button. But I know what happens when you don't. You end up charging someone two thousand dollars to attend their mother's funeral, and they remember that for the rest of their lives.
That's... a button. A literal button that says this person is not a revenue opportunity. This person is a human being in a terrible situation and we're going to treat them differently.
Hilbert: It wasn't labeled that. But yes. It was a button that said, this call is not about yield management. This call is about getting someone home.
The compassionate override is interesting because it gets at something the regulatory data can't capture. You can have an average fare increase that looks reasonable — sixteen percent, twenty-two percent, whatever — but if there's no mechanism for people who can't pay the algorithm's price... That's where exploitation lives. Not in the average — in the tails. In the people who fall through.
Hilbert: The algorithm doesn't know the difference between a vacation and a funeral. It just sees demand. It sees someone searching for a flight to New York on Tuesday, and it compares that to historical demand patterns and current booking curves, and it spits out a price. It doesn't know why you're traveling. It can't know. And in a normal market, that's fine — people have alternatives. In a monopoly crisis market, the algorithm is making life-altering decisions about who can afford to leave the country, and it's doing it blind.
Should a mechanism like that be mandatory for dominant carriers during emergencies? A regulatory requirement that if you're the only airline flying, you have to maintain some kind of hardship provision?
Hilbert: Good luck enforcing that. How do you audit compassion? What counts as a legitimate emergency? Who verifies the funeral? You'd need a bureaucracy to administer human decency, and that's a recipe for a different kind of disaster. But if you want to know whether an airline is exploiting a crisis, look at whether they have a policy for people who can't pay the algorithm's price. Not just the average fare. The policy for the hard cases.
That's a concrete test. Not did prices go up — they'll always go up when supply collapses. But did the airline build any relief valve for the people who were trapped? Did they have a phone number you could call? Did they have discretion built into the system? Or was the algorithm the only way through?
Hilbert: We had one. It cost us almost nothing. Maybe a few thousand dollars a month in foregone revenue. Most people never knew it existed. But the ones who needed it... they got home. And they remembered. Some of them wrote letters. Not to the company — to the agents who helped them. Because it wasn't the system that was compassionate. It was the people inside the system who had permission to act like humans.
That distinction between the system and the people inside it feels important. You can have a monopoly that's technically following the rules and still creating enormous human harm. And you can have people inside that monopoly who want to do the right thing but are constrained by the system they're operating.
Hilbert: That's why I keep coming back to the button. Because it wasn't a policy. It was a permission. Someone in management had said, yes, you're allowed to do this. And that permission made all the difference.
The question that sticks with me is whether Israel faces another crisis that causes mass foreign-airline withdrawal — will the market respond faster because of TechAir's precedent, or will El Al's dominance be even more entrenched? Does the memory of this episode make things better or worse next time?
TechAir proved the concept. It showed that alternative capacity can be organized relatively quickly if the economic incentive is there. But it also proved that the normal market couldn't deliver — that it took an extra-market intervention by people with deep pockets and a specific business need. Next time, maybe the startup airline launches in week three instead of month eight. Or maybe El Al has learned that public anger has a price tag too, and the algorithm gets adjusted before the regulator gets involved. But I wouldn't want to bet on either.
The El Al case is a microcosm of a broader problem. How do societies ensure essential services remain affordable during emergencies when the providers of those services are profit-seeking firms? It's not just airlines. It's energy, it's pharmaceuicals, it's food distribution. The answer isn't obvious, but the first step is admitting that the market will sort it out isn't sufficient when the market has only one participant. And the second step is building systems — regulatory, structural, and yes, human — that don't depend on the virtue of monopolists.
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Thanks to our producer Hilbert Flumingtop. This has been My Weird Prompts. We'll be back soon.
