HOSPITALITY AND TOURISM

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HOSPITALITY AND TOURISM ADVISORY SERVICES
A New Market Strategy for Israeli Tourism The
Ministry of Tourism Government of
Israel November 2006
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Quality in Everything We Do
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Agenda

• Introduction
• The Potential
• The Road to 4 Million Annual Visitors
• Summary

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Introduction
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The Research Team
Ernst Young, LLP Project Leader

• Worlds 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

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The Research Team
Ernst 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

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The Research Team
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

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Methodology
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Holistic and Results-Driven Approach
Analysis and Practical Strategies

• Supply
• - Hospitality Tourism
• Infrastructure
• Aviation and Investment
• Policy

Demand - Source Markets Demographics,
Attributes, Attitudes Preferences
Development and Marketing Strategies
Economic Impact and Return on Investment
A New Era of Tourism Growth for Israel
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The Primary Research
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

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The main goal isTo substantially grow inbound
tourism and to establish tourism as a leading
engine of growth for the Israeli economy
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The main obstaclePerception versus Reality
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Israel Current Perception
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Israel Current Reality
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The Potential
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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

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The Potential
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 Israels GDP
• The creation of nearly 45,000 new jobs in Israel

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The Road to 4 Million Annual Visitors
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Marketing Strategy
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
• Israels 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

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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

• France
• Italy
• Sweden

• USA
• UK
• Germany

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Return on Investment in Marketing
High return on investment
ROI of 91

• 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.

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Physical Infrastructure
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
  Israels market position

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Hotels
Present vs. Future
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Physical Infrastructure
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.

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Sites, Attractions and Amenities
Present vs. Future
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Investment Environment
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

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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
• 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 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

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

• Liberalize Israels 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

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Summary
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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
  Israels GDP and create 45,000 new jobs
• Improvements should be made to Israels
  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