h ospitality and t ourism a dvisory s ervices

HOSPITALITY AND TOURISM

ADVISORY SERVICES

e

A New Market Strategy for Israeli Tourism The Ministry of TourismGovernment of Israel

November 2006

Quality in Everything We Do

Quality in Everything We Do e2

1 Introduction

2 The Potential

3 The Road to 4 Million Annual Visitors

4 Summary

Agenda


Introduction


Ernst & Young, LLP – Project Leader

World’s largest professional services firm:

106,000 employees in 140 countries Global Real Estate, Hospitality and Construction practice with 3,500

employees in more than 25 countries serving more than 4,000 clients

The Hospitality and Tourism Advisory Services group:

Advisor to the leading organizations in the hospitality industry Knowledge leader in hospitality, tourism and leisure Extensive international experience Expertise in hospitality & tourism infrastructure development

The Research Team


The Research TeamErnst & Young, LLP – Hospitality & Tourism Advisory Services

Extensive international experience in:

Hotels Resorts Mixed-Use Developments Convention Centers Amusement Parks Sport Facilities Museums Other Leisure Real Estate


A Fully Integrated Team

The advisory team represents the best in class in their respective fields

Project management and infrastructure assessment

Policy, economic analysis and tracking & forecasting systems

Source markets and future marketing strategy

The Research Team


Methodology


Holistic and Results-Driven ApproachAnalysis and Practical Strategies

Development and Marketing StrategiesDevelopment and Marketing StrategiesDevelopment and Marketing StrategiesDevelopment and Marketing Strategies

SupplySupply- Hospitality & Tourism

Infrastructure- Aviation and Investment

Policy

SupplySupply- Hospitality & Tourism

Infrastructure- Aviation and Investment

Policy

DemandDemand- Source Markets:

Demographics, Attributes, Attitudes & Preferences

DemandDemand- Source Markets:

Demographics, Attributes, Attitudes & Preferences

Economic Impact and Return on InvestmentEconomic Impact and Return on InvestmentEconomic Impact and Return on InvestmentEconomic Impact and Return on Investment

A New Era of Tourism Growth for IsraelA New Era of Tourism Growth for IsraelA New Era of Tourism Growth for IsraelA New Era of Tourism Growth for Israel


Research in Fifteen Countries

Interviews with 104 tourism industry stakeholders in Israel

135 site inspections of tourism infrastructure

500,000 annual interviews for World Travel Monitor survey

Survey interviews with a total of 8,400 respondents in 8 countries

18 focus groups in 8 countries

51 interviews with international tour operators in 8 countries

The Primary Research


The main goal is…The main goal is…

To substantially grow inbound tourism To substantially grow inbound tourism and to establish tourism as a leading and to establish tourism as a leading

engine of growth for the Israeli engine of growth for the Israeli economyeconomy


The main obstacle…The main obstacle…

Perception versus RealityPerception versus Reality


Israel – Current Perception


Israel – Current Reality


The Potential


Substantial growth prospects for Israeli tourism

In 2005 Israel received a total of 1.9 million international visitors

A realistic target (also considering political setbacks and, on the other hand, aviation reform) is:

to double the number of international tourists in the next 5 years to 4-5 million visitors

The Potential

2006 2011

2 m

4-5 m


Substantial growth prospects for Israeli economy

Doubling the number of annual international visitors by 2011 to 4 million visitors could result in:

An annual addition of approximately NIS 18 billion in international travel and tourism receipts in Israel

An annual addition of approximately NIS 15 billion to Israel’s GDP

The creation of nearly 45,000 new jobs in Israel

The Potential


The Road to 4 Million Annual Visitors


A research-driven long-term marketing strategy for Israeli tourism

Israel has a large unexploited interest potential in international markets and thus considerable growth prospects

Current interest potential in Eight Priority Markets: 17.9 million visitors

Current annual visitation from Eight Priority Markets: 1.2 million

The political situation acts as a barrier but it can be overcome via the establishment of an attractive “touristic image” and a “moderate price” policy

Israel’s most important strength is its worldwide unique “religious culture / history” (but primarily in a touristic culture / sightseeing rather than a pure religious sense)

Another important strength is the “great diversity / variety” within a small area

Israel should implement a long-term marketing strategy

Marketing Strategy


Core strategies for the international markets:

Implementation of a 5-year image campaign: budget of 250 million USD / 50 million USD per year (this would be in line with the competitors)

Concentration on the first priority / high potential markets:

Russia and China are examples of second priority markets

Concentration on the core product “Tour”

Following a “mid-priced” strategy

Close partnership with tour operators / travel agencies as the central distribution channel

Improvement of the offer quality / orientation on the core product “Tour”

Improvement of the flight offer / cheaper flight prices

Marketing Strategy

France Italy Sweden

USA UK Germany


Return on Investment in Marketing

Our analysis suggests that for every additional dollar invested in marketing, the return on investment will be $9 in additional spending

An annual increase in marketing spending to $50 million could initially yield an annual average of $447 million in spending and over 510,000 additional visitors.

ROI of 9:1

High return on investment


Aging Lodging Supply

Upgrade the lodging product

Existing Hotels: generally dated, relatively unsophisticated, poorly designed, offer few international brands and present limited variety in product

First Priority: renovate existing hotels

Second Priority: develop new hotels

Attract well known international hotel brands

An upgraded lodging product could improve Israel’s market position

Physical Infrastructure


Present vs. Future

Hotels


Aging and Underdeveloped Sites and Attractions

Further develop existing sites and attractions

Israel has an unmatched concentration of unique attractions in a small area

However, many attractions are poorly maintained, underdeveloped, in need of renovation and do not include high-quality facilities and amenities

Public infrastructure in some tourist areas is in poor condition

Focus should be on further developing, expanding and upgrading existing sites and attractions in order to make them truly exceptional

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.

Physical Infrastructure


Present vs. FutureSites, Attractions and Amenities


How can the government facilitate private investment in tourism?

Establish a single Tourism Investment Board (TIB):

Prospective investors in tourism in Israel face a confusing array of organizations and procedures to gain government approvals and grants

This creates confusion and inefficiencies, and does not allow for an overarching development strategy to be implemented

The TIB will assume all tourism-related responsibilities from the Investment Center and be responsible for tourism investment, grants, incentives and partnerships with the private sector, based on a clear long term strategy

The TIB will be a separate entity, under the umbrella of the Ministry of Tourism

Final decisions on projects will be taken by the TIB board, which will include IMOT, HAMAT, Finance Ministry, and the Land Administration

The TIB will develop and promote product concepts to investors and will act as a concierge to court prospective investors and fast-track approvals

Investment Environment


What government incentives should be in place?

Revise the incentives available for investments in tourism:

Current grant and incentive system is too limited to make an impact

Israel’s 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 must be at least as compelling as those of destinations competing for the same capital and developers

Offer a safety net policy to investors to counterbalance security risks

Offer low interest financing for projects of special significance and/or when private financing is difficult to obtain

Award grants and incentives for renovations, not just for new developments

Seek private sector equity and operational expertise in public projects

Investment Environment


A more liberal aviation policy could result in substantial growth in tourism

Liberalize Israel’s aviation policy

Aviation policy in Israel has stunted market development

Liberalization of aviation policy alone could result in 580,000 more international visitors and 10,300 new jobs in travel and tourism sectors by 2011

A liberalized policy will allow for increases in international airline activity to Israel, easing restrictions on airlines, capacity and frequencies

Provide extended rights for a second Israeli airline to fly international routes

Relax restrictions on connection flights

Pursue charter and low-cost airlines to operate international flights to BGA

Explore extending airport hours

Aviation Policy


Summary


Considerable growth prospects for inbound tourism to Israel

Israel has substantial growth prospects in the international markets

Doubling the number of international visitors within five years could add NIS 15 Billion to Israel’s GDP and create 45,000 new jobs

Improvements should be made to Israel’s organizational and physical tourism infrastructure in order for Israel to be competitive

Israel needs a better set of incentives and a more efficient organizational structure in order to more successfully attract investments in tourism

A more liberal aviation policy would have far reaching outcomes in terms of tourist arrivals, job creation and economic activity

A long-term marketing strategy with a secured long-term budget is necessary for Israel to establish a “touristic image” in the international markets

Summary

h ospitality and t ourism a dvisory s ervices

Documents

inbound tourism

tourism receipts

clientsthe hospitality

international travel

tourism industry stakeholders

annual interviews

international tour operators

substantial growth prospects