HOSPITALITY AND TOURISM ADVISORY SERVICES Tourism Infrastructure and

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

Agenda 1 Introduction 2 Physical Infrastructure 3 Organizational Infrastructure 4 Investment Environment 5 Summary Quality in Everything We Do 1 e

1 Introduction Quality in Everything We Do 2 e

The Primary Researching Israel’s 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 Quality in Everything We Do 3 e

The main goal is… To offer a high quality tourism product and a modern tourism infrastructure that would support growth in inbound tourism Quality in Everything We Do 4 e

The main obstacles… Aging infrastructure Limited funding Limited cooperation Quality in Everything We Do 5 e

2 Physical Infrastructure Quality in Everything We Do 6 e

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 Quality in Everything We Do 7 e

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%) Quality in Everything We Do 8 e

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% Quality in Everything We Do 9 e

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% Quality in Everything We Do 10 e

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 Quality in Everything We Do 11 e

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 Quality in Everything We Do 12 e

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 traveler’s experience § Promote perception of high-value § Improve Israel’s standing relative to other destinations § Encourage repeat visitation § Facilitate efforts to attract major international hotel brands Quality in Everything We Do 13 e

Hotels Recommendations Second Priority: Develop New Hotels § New lodging development could induce overnight demand § Develop lodging products that currently are underrepresented 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 Quality in Everything We Do 14 e § New hotels should offer a sense of place, incorporate local

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 raise the standards for existing hotels § International brands are important to American travelers Quality in Everything We Do 15 e

Hotels Present vs. Future Quality in Everything We Do 16 e

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 17 § According to focus groups and trade interviews: limited e Quality in Everything We Do

Sites and Attractions Recommendations First Priority: Further Develop Existing Sites and Attractions § Further develop, expand 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. Quality in Everything We Do 18 e

Amenities Some general observations… § Israel has ample high-quality amenities § Examples of markets that generally offer high-quality amenities: § Haifa § Tel Aviv § Jerusalem § Eilat § Herzeliya § Examples of markets that Akko offer sufficient amenities: § do not § Dead Sea § Tiberias § Netanya Quality in Everything We Do § Nazareth § Safed 19 e

Amenities Recommendations Develop Amenities in Underdeveloped Areas § Develop additional amenities in submarkets that currently lack high quality/value amenities: § Food and beverage § Retail § Nightlife Quality in Everything We Do 20 e

Attractions and Amenities Present vs. Future Quality in Everything We Do 21 e

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 Quality in Everything We Do 22 e

Future Development Recommendations § Development efforts should be concentrated in Israel’s primary tourism areas § Make those destinations truly exceptional § Specific areas that have substantial growth potential include: § Jerusalem § Tiberias § The Galilee § Tel Aviv § Akko Quality in Everything We Do 23 e

3 Organizational Infrastructure Quality in Everything We Do 24 e

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 25 Quality in Everything We Do e

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 26 e Quality in Everything We Do

The Ministry of Tourism Recommendations Reform the Ministry’s 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 Quality in Everything We Do 27 e

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 Quality in Everything We Do 28 e

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 Israel’s overall tourism strategy, financial viability, economic impact, guaranteed availability of funds for ongoing maintenance, etc. Quality in Everything We Do 29 e

Coordination with Public and Private Some key Sector 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 Quality in Everything We Do 30 e

Coordination with Public and Private Recommendations Sector 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 Quality in Everything We Do 31 e

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 Quality in Everything We Do 32 e

Regional Organizations Some key observations… § General characteristics: § Small, employ few employees and have limited budgets § Responsible for small geographic areas (microregions) § Limited international reach / marketing § Focus on the domestic market § Overlap with other regional organizations § Limited interaction and coordination with other organizations Quality in Everything We Do 33 § Compete rather than cooperate with other e

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 Quality in Everything We Do 34 e

4 Investment Environment Quality in Everything We Do 35 e

Tourism Investment Policy § A demand-side perspective is an insufficient basis for a tourism strategy Holistic Strategy r to Se c r to Pu Marketing c Se bl ic te iva § Traditional paradigm: Marketing => Visitation => Economic returns Pr § The product (supply-side) matters! Earned Media Investment Facilitation § Israel requires a paradigm with a new focus… the investor. Quality in Everything We Do Economic Returns Visitation 36 Destination Development e

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. Quality in Everything We Do 37 e

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. Lodging § by an established set of investment goals and strategies § Product improvement including: § Attractions development related Infrastructure 38 Quality in Everything We Do e

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. ) Quality in Everything We Do 39 e

Investment Catalyst #1: TIB Current Decision-Making Structure Quality in Everything We Do 40 e

Investment Catalyst #1: TIB New Decision-Making Structure IMOT HAMAT Tourism Investment Board Finance Quality in Everything We Do 41 ILA Legislation may be required to establish the TIA. However, the legal environment was not assessed in relation to the new entity. e

Investment Catalyst #2: Incentives Realities 1. Current grant and incentive system is too limited to make an impact. 2. 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. 3. Further, incentives need to address the particular risks to tourism investment in Israel. 4. And these incentives must be at least as compelling as those of destinations competing for the same capital and developers. Quality in Everything We Do 42 e

Investment Catalyst #2: Incentives Recommendations 1. Award grants and incentives for renovations, not just for expansions and new projects. 2. Require a budget for annual maintenance as a grant criterion. 3. 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. 4. Offer a safety net policy to investors to counterbalance security risks. Quality in Everything We Do 43 e 5. Seek private sector equity and operational expertise in

5 Summary Quality in Everything We Do 44 e

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 Quality in Everything We Do 45 e

Quality in Everything We Do 46 e