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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 e Quality in Everything We Do Agenda 1 Introduction 2 The Potential 3 The Road to 4 Million Annual Visitors 4 Summary Quality in Everything We Do 1 e Introduction Quality in Everything We Do 2 e The Research Team 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 Quality in Everything We Do 3 e 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 Quality in Everything We Do 4 e 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 Quality in Everything We Do 5 e Methodology Quality in Everything We Do 6 e Holistic and Results-Driven Approach Analysis and Practical Strategies Supply Demand - Hospitality & Tourism Infrastructure -Aviation and Investment Policy - Source Markets: Demographics, Attributes, Attitudes & Preferences Development and Marketing Strategies Economic Impact and Return on Investment A New Era of Tourism Growth for Israel Quality in Everything We Do 7 e 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 Quality in Everything We Do 8 e The main goal is… To substantially grow inbound tourism and to establish tourism as a leading engine of growth for the Israeli economy Quality in Everything We Do 9 e The main obstacle… Perception versus Reality Quality in Everything We Do 10 e Israel – Current Perception Quality in Everything We Do 11 e Israel – Current Reality Quality in Everything We Do 12 e The Potential Quality in Everything We Do 13 e 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 4-5 m 2m 2006 Quality in Everything We Do 2011 14 e 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 Israel’s GDP The creation of nearly 45,000 new jobs in Israel Quality in Everything We Do 15 e The Road to 4 Million Annual Visitors Quality in Everything We Do 16 e 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 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 Quality in Everything We Do 17 e 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: USA France UK Italy Germany Sweden 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 Quality in Everything We Do 18 e Return on Investment in Marketing High return on investment ROI of 9:1 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. Quality in Everything We Do 19 e 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 Israel’s market position Quality in Everything We Do 20 e Hotels Present vs. Future Quality in Everything We Do 21 e 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. Quality in Everything We Do 22 e Sites, Attractions and Amenities Present vs. Future Quality in Everything We Do 23 e 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 Quality in Everything We Do 24 e 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 Quality in Everything We Do 25 e Aviation Policy 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 Quality in Everything We Do 26 e Summary Quality in Everything We Do 27 e 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 Quality in Everything We Do 28 e