HOSPITALITY AND TOURISM

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HOSPITALITY AND TOURISM ADVISORY SERVICES
Tourism Infrastructure and Product The Ministry
of Tourism Government of Israel November 2006
e
Quality in Everything We Do
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Agenda

• Introduction
• Physical Infrastructure
• Organizational Infrastructure
• Investment Environment
• Summary

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1 Introduction
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The Primary Research
Researching Israels Tourism Infrastructure and
Product

• Interviews with 104 tourism industry stakeholders
  in Israel
• 135 site inspections of tourism infrastructure
• Survey interviews with a total of 8,400
  respondents in 8 countries
• Total of 18 focus groups in 8 countries
• 51 interviews with international tour operators
  in 8 countries
• Research at 2006 ITB Trade Show

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The main goal isTo offer a high quality
tourism product and a modern tourism
infrastructure that would support growth in
inbound tourism
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The main obstaclesAging infrastructureLimited
fundingLimited cooperation
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2 Physical Infrastructure
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Destination Israel
Putting things in prospective

• Demand In 2005
• 1.9 million international visitors 26.4
  increase over 2004
• 85 from Europe and North America
• 58 from US, France, UK, Germany and Italy
• Supply in 2005
• 334 hotels 46,700 guestrooms
• 7,700 rural guestrooms (Zimmerim)
• 29 youth hostels 6,190 beds
• 60 National Parks and Nature Reserves 200
  museums 35,000 known archeological sites 5
  World Heritage Sites numerous religious and
  historical sites natural, sports and
  entertainment attractions

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Hotels
Lodging Supply

• Largest lodging markets
• Eilat 10,828 rooms (23)
• Jerusalem 9,218 rooms (20)
• Tel Aviv 5,865 (13)
• Dead Sea 4,011 (9)
• Tiberias 3,961 (8)
• Top 5 combined 33,883 (73)

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Hotels
Lodging Demand

• Top 5 lodging markets by share of total
  international person nights
• Jerusalem 31
• Tel Aviv 24
• Eilat 11
• Tiberias 5
• Dead Sea 5
• Top 5 combined 76

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Hotels
Lodging Demand

• International person night in 2005 versus 2000
• Haifa 20
• Herzeliya 20
• Tel Aviv 2
• Dead Sea - 25
• Jerusalem - 28
• Netanya - 43
• Eilat - 54
• Tiberias - 60

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Hotels
Lodging Demand

• Spending per international person night in 2005
• Herzeliya 125
• Tel Aviv 95
• Dead Sea 81
• Haifa 77
• Eilat 76
• Jerusalem 70
• Tiberias 48
• Netanya 37

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Hotels
Some general observations

• Dated and relatively unsophisticated
• Generic in appearance
• Do not incorporate unique architecture and design
• Do not reflect current trends in hotel
  development
• Do not fully capitalize on their surroundings
• In need of renovation
• Limited variety in product
• Few international brands
• Highest quality Eilat, Jerusalem and Tel Aviv
• Lowest quality Netanya, Haifa and the Dead Sea

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Hotels
Recommendations

• First Priority Renovate Existing Hotels
• Faster and requires smaller capital investment
  than new development
• Once several hotels in each sub-market are
  renovated, others may follow suit in order to
  remain competitive
• Higher-quality lodging product would
• Improve travelers experience
• Promote perception of high-value
• Improve Israels standing relative to other
  destinations
• Encourage repeat visitation
• Facilitate efforts to attract major international
  hotel brands

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Hotels
Recommendations

• Second Priority Develop New Hotels
• New lodging development could induce overnight
  demand
• Develop lodging products that currently are
  under-represented in Israel
• New development should meet market needs
  primarily high-quality moderately-priced 3-4 star
  hotels and architecturally-distinct hotels
• Develop architecturally distinct, flagship luxury
  hotels, with broadly recognized international
  brands Tel Aviv and Jerusalem
• New hotels should offer a sense of place,
  incorporate local architecture and design and
  capitalize on their surroundings

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Hotels
Recommendations

• Attract Well Known International Hotel Brands
• Attract well known international hotel brands to
  increase awareness and visibility of Israel as an
  international destination
• Applies to both conversions and new developments
• Major hotel brands could induce high-rated demand
  and raise the standards for existing hotels
• International brands are important to American
  travelers

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Hotels
Present vs. Future
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Sites and Attractions
Some general observations

• Unmatched concentration of unique attractions in
  small geography
• Jerusalem is the anchor attraction
• Most attractions currently have excess capacity
• Many are in need of renovation and further
  development
• Many are poorly maintained
• Majority do not include high-quality
  tourist-oriented facilities and amenities
• Public infrastructure in some tourist areas is in
  poor condition
• Insufficient awareness of attractions
• There are examples of well-developed attractions
• According to focus groups and trade interviews
  limited interested in casino or theme park

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Sites and Attractions
Recommendations

• First Priority Further Develop Existing Sites
  and Attractions
• Further develop, expand and upgrade existing
  attractions in order to make them truly
  exceptional
• Improve facilities, incorporate new technologies
  and multimedia tools, add and upgrade amenities
  and generally enhance the visitor experience
• Upgrade and better maintain public infrastructure
  in tourist areas Old City of Jerusalem Tel Aviv
  beachfront Eilat promenade Tiberias city
  center etc.
• Capital investments by the public sector,
  public-private partnerships, private donations,
  corporate sponsorships, etc.

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Amenities
Some general observations

• Israel has ample high-quality amenities
• Examples of markets that generally offer
  high-quality amenities
• Tel Aviv
• Jerusalem
• Eilat
• Examples of markets that do not offer sufficient
  amenities
• Dead Sea
• Tiberias
• Netanya

• Haifa
• Herzeliya
• Akko
• Nazareth
• Safed

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Amenities
Recommendations

• Develop Amenities in Underdeveloped Areas
• Develop additional amenities in submarkets that
  currently lack high quality/value amenities
• Food and beverage
• Retail
• Nightlife

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Attractions and Amenities
Present vs. Future
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Transportation
Recommendations

• Reform aviation policy
• Make airport security more tourist-friendly
• Provide better information resources on public
  transportation
• Make public transportation more tourist-friendly
  by improving signage, providing schedules and
  system maps in English, etc.
• Consider needs of international tourists in
  future development of mass transit
• In the short-term increase number of direct
  charter flights to Eilat
• Improve taxi service

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Future Development
Recommendations

• Development efforts should be concentrated in
  Israels primary tourism areas
• Make those destinations truly exceptional
• Specific areas that have substantial growth
  potential include
• Jerusalem
• Tiberias
• The Galilee
• Tel Aviv
• Akko

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3 Organizational Infrastructure
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Organizational Infrastructure

• What organization are involved in Israeli
  Tourism?
• National Government Organizations
• e.g. Ministry of Tourism, Ministry of Finance,
  Ministry of Transportation
• National Public Sector Organizations
• e.g. Israel Nature and Parks Authority, Israel
  Antiquities Authority
• National Private Sector Organizations
• e.g. Israel Hotel Association, Israel Incoming
  Tour Operator Association
• Regional Public Sector Organizations
• e.g. Red Sea Resort Tourism Administration,
  Western Galilee Tourism Trust
• Regional Private Sector Organizations
• e.g. Tel Aviv Hotel Association, Jerusalem Hotel
  Association

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The Ministry of Tourism
Some key observations

• No clear strategy and methodology
• Little long-term planning
• Reactive not proactive
• Bureaucratic and thus slow moving
• Limited expertise in financial evaluation of
  development projects
• Approves projects without securing maintenance
  budgets
• Promotes developments that do not always meet
  market demand

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The Ministry of Tourism
Recommendations

• Reform the Ministrys Operations
• Reform the Ministry to become less bureaucratic
  and more responsive to changing market conditions
• Adopt more business-like mentality
• Focus on streamlining processes, reducing
  hurdles, establishing goals and objectives,
  measuring success and demanding accountability

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The Ministry of Tourism
Recommendations

• Long-Term Strategy
• Adopt a clear research-driven strategy for the
  development and marketing of Israeli tourism
• The strategy should set short, medium and
  long-term goals and establish tools to measure
  success
• Adopt long-term planning and budgeting, as well
  as clear methods for economic and financial
  analysis

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The Ministry of Tourism
Recommendations

• Clear Criteria for Assessing Investments
• Establish clear criteria and processes for
  assessing investments in tourism
• Include clear and systematic financial
  analysis/screening
• Evaluate investments based on fit with Israels
  overall tourism strategy, financial viability,
  economic impact, guaranteed availability of funds
  for ongoing maintenance, etc.

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Coordination with Public and Private Sector
Some key observations

• The Ministry has limited coordination and
  cooperation with public and private sector
• Other government ministries
• Municipalities
• National public and private organizations
• Regional public and private organizations
• No established forum for regular cooperation

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Coordination with Public and Private Sector
Recommendations

• Establish a Forum for Cooperation
• Establish a forum for the Ministry to work with
  the private sector and other public sector
  organizations
• Hold regular, frequent and systematic meetings in
  which ideas could be exchanged and opportunities
  and challenges discussed
• Include the Tourism Ministry, the Finance
  Ministry, the Israel Hotel Association, the
  aviation sector, the Israel Incoming Tour
  Operators Association, relevant municipalities
  and other organizations

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Regional Organizations
Some key observations

• Multitude of public and private organizations
  involved in the tourism industry on regional
  level
• Regional Tourism Associations
• Regional Hotel Associations
• Regional Tourism Development Organizations

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Regional Organizations
Some key observations

• General characteristics
• Small, employ few employees and have limited
  budgets
• Responsible for small geographic areas
  (micro-regions)
• Limited international reach / marketing
• Focus on the domestic market
• Overlap with other regional organizations
• Limited interaction and coordination with other
  organizations
• Compete rather than cooperate with other
  organizations

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Regional Organizations
Recommendations

• Consolidate Regional Organizations
• Encourage the consolidation of small regional
  organizations
• Create incentives for small organizations to
  merge and disincentives for those organizations
  that refuse to merge
• New integrated organizations should have larger
  budgets and better marketing capabilities
• Regions of focus the Galilee, the Northern and
  Central Coastal Regions

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4 Investment Environment
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Tourism Investment Policy
Holistic Strategy

• A demand-side perspective is an insufficient
  basis for a tourism strategy
• The product (supply-side) matters!
• Traditional paradigm Marketing gt Visitation
  gt Economic returns
• Israel requires a paradigm with a new focus
  the investor.

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Investment Catalyst 1 TIB

• Establish a single Tourism Investment Board
  (TIB)
• A prospective investor in tourism in Israel faces
  a confusing array of organizations and procedures
  to gain government approvals and/or grants.
• There are presently five separate organizations
  with responsibility for tourism investment.
• Not only does this create confusion and
  inefficiencies, it does not allow for an
  overarching development strategy to be
  implemented.
• Turnover within key organizations undermines
  continuity of any strategy that may exist.

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Investment Catalyst 1 TIB
Tourism Investment Board (TIB) will be
responsible for tourism investment, grants,
incentives and partnerships with the private
sector. This will integrate attractions and
lodging strategy under a common long term vision.

• A separate entity, under the umbrella of the
  Tourism Ministry. Separate full-time staff.
• Final decisions on projects will be taken by the
  TIB board, which will include IMOT, HAMAT,
  Finance Ministry, and the Land Administration.
• Guided by an established set of investment goals
  and strategies including

• Product improvement
• Attractions development

• Lodging
• Attraction-related Infrastructure

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Investment Catalyst 1 TIB

• Develop and promote product concepts to investors
  
• TIB will act as a concierge to court prospective
  investors. Fast-track approvals
• TIB will develop in-house evaluation metrics for
  projects
• Initially funded by the government. Joint
  ventures should be sought to fund the TIB in the
  longer term. (TIB should not be considered a
  developer only a promoter and/or participant.)

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Investment Catalyst 1 TIB

• Current Decision-Making Structure

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Investment Catalyst 1 TIB

• New Decision-Making Structure

IMOT
Tourism Investment Board
ILA
HAMAT
Finance
Legislation may be required to establish the TIA.
However, the legal environment was not assessed
in relation to the new entity.
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Investment Catalyst 2 Incentives

• Realities
• Current grant and incentive system is too limited
  to make an impact.
• Israels investment incentives must address the
  real issue of a deteriorating product in the
  midst of new regional development of a much
  higher quality.
• Further, incentives need to address the
  particular risks to tourism investment in Israel.
  
• And these incentives must be at least as
  compelling as those of destinations competing for
  the same capital and developers.

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Investment Catalyst 2 Incentives

• Recommendations
• Award grants and incentives for renovations, not
  just for expansions and new projects.
• Require a budget for annual maintenance as a
  grant criterion.
• Offer low interest financing for projects of
  special significance and/or when private
  financing is difficult to obtain. For mega
  projects, the government can back bonds.
• Offer a safety net policy to investors to
  counterbalance security risks.
• Seek private sector equity and operational
  expertise in public projects.

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5 Summary
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Summary

• Renovate existing lodging supply
• Develop new lodging
• Attract well-known international hotel brands
• Further develop existing attractions
• Develop amenities in underdeveloped areas
• Address issues relating to transportation to and
  in Israel
• Reform the Tourism Ministry
• Consolidate regional organizations
• Establish a tourism investment Board
• Provide better incentives for tourism development

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