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How the Open Skies Agreement disrupted the Israeli market

In 2013, the Open Skies agreement was signed between Israel and the European Union, allowing many new companies to enter the local flight market. This had a dramatic impact on the prices of flights; as many low-cost flight companies began offering various routes and destinations, competition increased and prices plummeted in comparison with flight prices prior to the agreement. As travelling became more affordable, more consumers were able to afford to fly overseas, and many began to travel more frequently too. The number of consumers travelling overseas rises considerably every year; just in 2017, there was an increase of about 20% in comparison with 2016. Even in the winter, typically less attractive for travelling, there were long queues at Ben Gurion Airport.


While not obvious at first, with time the Open Skies agreement's effect on several local markets became evident. The market most notably affected is local tourism; with prices of travel deals that include flights and hotels often lower than local accommodation prices, many consumers choose to travel overseas and explore new destinations. Apparel has also been affected significantly. Exposed to far lower prices in many European cities, with chains such as Primark offering a large variety of products at very attractive prices, consumers began to purchase less locally – preferring to shop abroad instead. In the past year we have even witnessed the "shopping vacation" phenomenon; consumers travelling exclusively for shopping purposes, choosing their destination according to which chains and stores exist in it.


Moreover, when travelling abroad consumers often discover various brands that are not offered locally and then seek them again once back home; this is one of the factors contributing to the rise of online retailing, which allows consumers access to many international brands. Alongside the growing international online retailing and rising costs, outgoing shopping tourism is currently one of the biggest threats to local apparel companies.

Other markets are affected similarly, though to a lesser extent. For example, beauty and personal care – of which there is a far larger variety overseas, at much lower prices. International brands especially are priced locally very high in comparison with the same brands overseas, encouraging many to purchase them either while travelling or from international online retailers. Consumer electronics, too, are purchased more often overseas due to price gaps. Even alcoholic drinks and foodservice see a certain impact, as consumers prefer to spend their disposable income on travels and cut down on outings to restaurants and bars.


These developments will continue to deepen during the next few years. More low-cost companies keep entering the market, offering a growing variety of destinations – which encourages consumers to keep travelling and exploring more places all over the world, and the impact of this will expand to other markets too.