Slide1: ISRAEL TOURISM ANALYSIS Prepared by MCM Group International December 2006


Slide2: Executive Summary 3 Study Objectives 16 Current Situation 21 Tourism Economics / Sizing 33 Market Demand 67 Travel Trends and the Reasons People Travel 85 Domestic Tourism 100 Marketing 107 Strategic Plan 142 Research Group 176 Presentation Contents


Slide3: Executive Summary


Slide4: This study is researched and evaluated from an economic perspective, detailing strategies to increase revenues; determine where best to invest; and to examine what capital improvements will yield the highest returns. Israel’s tourism economy is comprised of a system of inbound visitor revenues and outbound domestic expenditures. The study focuses on `net’ tourism revenues – the difference between the total tourism spend in country and that spent by Israelis on outbound travel. Study Objective


Slide5: From a `net revenue’ perspective, clearly the first priority is addressing domestic tourism expenditures. This is true for several reasons: Domestic in-country tourism expenditures currently represent 65% of hotel person-nights. In projected models at three million tourists, they will still represent the majority of person-nights. Israel has undergone periodic market volatility and may continue to do so. It is economically imperative to secure a growing domestic tourism base to dampen the economic impacts of future tourism volatility. Study Objective (cont.)


Slide6: Addressing domestic tourism expenditures: Israel has done little to address the long-term needs of domestic tourism. While inbound tourism has doubled since 1977 to 2.0 million, outbound tourism has increased over eleven times to 3.7 million. As a result Israel has moved over the last decade from a net tourism importer of funds to a net exporter – a net loss of $1.1 billion USD in 2005 alone. Study Objective (cont.)


Slide7: Addressing domestic tourism expenditures: In addressing domestic tourism, the key to Israel’s long-term success at building a truly compelling internal marketing destination is to fully develop Eilat. And the key to increasing domestic tourism expenditures is to greatly enhance the infrastructure and attraction base in Eilat. Thus, from an economic point of view, Israel’s first tourism priority is to develop Eilat as a long-term compelling domestic destination capable of retaining a larger share of the domestic tourism spend. Study Objective (cont.)


Slide8: Addressing the inbound tourism issue, the study’s visitor analysis set out to determine what is required of Israel’s tourism sector to attract and service 3.0 to 4.0 million international tourists. The study addressed infrastructure capacity development and investment strategy. Study Objective (cont.)


Slide9: Finally, in terms of overall tourism development strategy, the study set out to answer a set of priority strategic questions: What are the primary issues confronting Israel as it sets out to expand its tourism economy? What is the best strategy to increase overall tourism revenues? What are the principal issues relating to the competitiveness of Israel’s tourism products, pricing and sizing? Where should the tourism industry focus its investment and growth strategies? How should Israel’s tourism products be positioned and marketed? Study Objective (cont.)


Slide10: Our research and analysis clearly demonstrates that Israel can significantly expand the economic role that tourism plays in the overall economy. In order to expand its tourism base from 2.0 to 4.0 million inbound visitors, Israel will need to adopt a series of tourism development initiatives. Promote/ incentivize domestic tourism Significantly increase attractions, entertainment and shopping at Tel Aviv and Eilat Increase the number of hotel rooms by 8,750 with 4,000 of them required in Eilat Enhance the accommodation infrastructure in rural destinations to increase domestic tourism (95% of rural tourism throughout the world is domestic) Study Findings


Slide11: Because of Israel’s size, level of economic development, tourism infrastructure base, and geographical location in the Eastern Mediterranean, Israel is not a low-cost, tour driven, mass market leisure destination. Israel should target the upper one-third of the traveling public and not the mass market middle third. Israel needs to do this both because it cannot compete directly against mass market tour destinations in the eastern Mediterranean in pricing or mass market leisure appeal; nor are its target market segments mass market. Study Findings (cont.)


Slide12: Israel’s growth needs to be driven by five market segments: Jews visiting friends and family and solidarity visitors Christian Pilgrims Regional discount/ charter leisure package tourists for regional holidays ( Eilat-based ) Primary niche market travelers Business/ Conference/ Professional Because of the religious and conservative nature of West Jerusalem, the community is not conducive for creating significantly expanded revenue producing programs/ facilities for tourism. Infrastructure focus should be in Eilat and Tel Aviv. Study Findings (cont.)


Slide13: Allowing low cost carriers to land at Ben-Gurion airport will have a significant negative impact on Israel’s balance of tourism trade. Using Eilat as a port of entry for low-cost airlines will most likely have a neutral net economic impact but increase inbound tourism, particularly for regional tours. Israel needs to create a product positioning that appeals to each of its target markets. For example: Eilat, Petra, Mt. Sinai, Sharm El Sheikh for the iconic adventure traveler Mt. Sinai, Eilat, Dead Sea, Jerusalem, Galilee for the Christian pilgrim Tel Aviv, Eilat, Sharm El Sheikh for those seeking Sun, Fun and Nightlife Summary Of Development Strategies


Slide14: Focus first on supporting and growing domestic tourism. Develop a segmented marketing strategy – not mass-market directed. Pursue an upper-third price-positioning. Increase the quantity of hotel rooms, with the majority being developed in Eilat. Upgrade the overall product stock throughout Israel to enhance per cap expenditures. Summary Of Development Strategies


Slide15: Do not undertake a low-cost carrier offering at the Ben Gurion airport. Pursue Eilat as the port of entry for LCC’s. Develop diversified distribution channels to allow specific target market segmentation. Provide a $150.0 million tourism marketing budget over 5 years, starting the first year with a $35.0 million expenditure. Summary Of Development Strategies (cont.)


Slide16: Study Objectives


Slide17: The Study’s Principal Goal To determine what tourism strategies will yield Israel the highest return on investment over the next decade.


Slide18: To determine what is required of Israel’s tourism sector to attract and service 3.0 to 4.0 million international tourists: Infrastructure Market strategy Development focus Investment strategy Study’s Visitor Analysis


Slide19: Israel’s tourism economy is comprised of a system of inbound visitor revenues and outbound domestic expenditures. This study addresses the strategies that will yield the highest net tourism revenues on the minimum tourism investment. The study is researched and evaluated from an economic perspective, detailing strategies to increase revenues; determine where best to invest; and examine what specific capital improvements will yield the highest returns. Study’s Economic Analysis


Slide20: The study set out to answer several key questions: What are the key issues confronting Israel as it sets out to expand its tourism economy. What is the best strategy to increase overall tourism revenues. What are the principal issues relating to the competitiveness of Israel’s tourism products, pricing, and sizing. Where should the tourism industry focus its investment and growth strategies? How should Israel’s tourism products be positioned and marketed? Study Approach


Slide21: Current Situation


Slide22: Over the last decade, Israel’s Tourism balance of trade has gone from a positive $463.5 million (1992) to a negative $1,125.5 million by 2005. Per Capita Expenditures of tourists has fallen 48% (adjusted for inflation) in just 6 years. The Eastern Mediterranean destination markets are taking an increasingly larger share of Israel’s European target markets. In short, the current national tourism development strategies are leading to a long-term erosion of the industry. A thorough rethinking needs to be undertaken to ensure sustained economic growth in this vital national sector. Israel’s Tourism Industry has three major interrelated problems


Slide23: Because of Israel’s highly educated population it was able to promote effective national economic growth through high technology manufacturing and knowledge-based enterprises. During this same period many of its Mediterranean competitors did not possess these educational advantages and sought to develop their tourism industry as an alternative strategy for increasing their GDP. Like Israel, many of these countries faced internal conflicts and political instability but despite that achieved significant tourism growth because it was targeted as a national priority. Current Situation 1990-2005


Slide24: There has been a dramatic decrease in Israel’s balance of tourism trade over the last decade. Between 1999-2005, the deficit of outbound to inbound tourists increased 894,000. A shift in the pattern of five countries account for all the difference. Israel went from a positive tourism balance of 15,600 in 1999 with the United States to a negative balance of 626,500. Germany increased its negative balance to 191,500 tourists over the past 6 years. Bilateral Tourism 1999-2005


Slide25: Israel went from a positive balance with the United Kingdom of 24,300 in 1999 to a negative balance of 56,100 in 2005. Israel went from a positive balance of 8,500 with the Netherlands to a negative balance of 69,600. In 2005 Israel had 3.77 million domestic departures and 1.91 million inbound arrivals. Bilateral Tourism 1999-2005 (cont.)


Slide26: Inbound tourism has doubled from 1.0 million to 2.0 million, an annualized growth rate of 2.6 percent. Outbound tourism has risen from 325,000 to 3.7 million during the same period increase of 11.4 times, or an annualized growth rate of 9.5%. Outbound tourism has risen 3.65 times faster than inbound tourism over the period. Long-term Tourism Trends in Israel 1977-2005


Slide27: Because of the past periodic volatility of international tourism, Israel needs to ensure the financial viability of its tourism industry by prioritizing its strategic planning around the domestic market. Domestic tourism has been a majority share of hotel person-nights since 1998 and accounted for 65% of person-nights in 2005. Although it will certainly be a goal of any national tourism policy to increase international tourism to its old highs of 59% or higher, Israel must first define and secure a long-term strategy for domestic tourism to provide a financial underpinning for the industry. Our economic model shows that at 3.0 million international visitors, the majority of person-nights (51%) will still be taken by domestic tourists. At 4.0 million international tourists, we project that 46% of person nights will still be accounted for by domestic tourism. Stabilizing the Sector’s Financial Underpinning


Slide28: Rising standards of living and decreasing air fares have doubled the size of global tourism on the demand size. On the supply side, the number of hotel rooms have more than doubled; globalization is standardizing values and quality; and specialization and market segmentation are driving new patterns of tourism. Tourists are becoming increasingly demanding and more experienced. ‘Sun and Sea’ destinations are being commoditized and face increasing downward price pressures. Contemporary tourists demand more experience than traditional sun and sea offerings usually provide. Major Changes in Global Tourism Market since 1990


Slide29: High value customers are increasingly more difficult to attract and retain as competitive markets increasingly expand. There is an overall trend of increasing price sensitivity as the global market expands its offerings. Major Changes in Global Tourism Market since 1990 (cont.)


Slide30: Israel is surrounded by Mass Market Mediterranean destinations which will exert long-term price pressures on the Israeli tourism products. Because of the size of these competitive markets (Egypt, Turkey, Greece, Tunisia, Morocco), and Israel’s level of economic development, Israel will not be able to effectively price against the offerings of international Mass Market tour operators in either the low or mid-range markets. Despite pricing differences, product parity is occurring rapidly throughout the region, with tourists’ expectation on the rise. Other Forces at Play


Slide31: Balance of Trade ( in US Millions ) 1992 1,436.5 1,911.0 $463.5 + 1997 2,283.4 2,732.3 $448.9 + 2001 2,944.8 1,033.9 $1,910.9 - 2005 2,895.2 1,769.71 $1,125.5 - 1 Represents 3.6% of revenues from exports of all goods and services in 2005 Expenditures Income Positive or of Israelis from Negative Balance Traveling Abroad Tourists of Trade


Slide32: Per Capita receipts from incoming tourists fell from $1,563 in 1999 to just $865 in 2005. The tourism demographic changed during the same period with more arrivals staying with friends and relatives with fewer in higher-priced hotels. Per Capita Expenditures Israel Inbound Tourism


Slide33: Tourism Economics / Sizing


Slide34: The goal of this analysis is to determine the economic requirements and consequences on the tourism sector of achieving the 3.0 million and 4.0 million level of international tourists. The issues surrounding those levels include: The most effective strategy to turn the country from a net exporter of tourism funds to a net importer. Where to focus bi-lateral tourism programs to most significantly effect balance of tourism trade. How should national macro-economic forces that significantly influence tourism patterns be addressed? Tourism Economics and Sizing


Slide35: The issues surrounding those levels include: How best to encourage/incentivize domestic tourism growth. What key markets can most likely become feeders for inbound tourism growth. How many new hotel rooms are required and where should they be located to appropriately service 3.0-4.0 million inbound tourists. What is the most financially reasonable size of the national tourism marketing budget? Tourism Economics and Sizing (cont.)


Slide36: Macro-Tourism Economics From a national macro-economic perspective, tourism policies should be designed to create a net positive balance of tourism trade. In a general sense this means increasing inflows of tourism revenues and reducing outflows. Thus the national tourism policy needs to address the entire tourism system focusing equally on how to increase both domestic as well as international tourism revenues.


Slide37: From the perspective of national balance of trade payments from 1999 to 2005, Israel has lost significant ground. The four countries that account for nearly all of that loss are the United States (57%), Germany (17%), United Kingdom (7.1%) and the Netherlands (6.9%), for a total of 88.0% of the tourism trade balance loss. Only two countries had an Israeli-improved balance of tourism trade over this period – France and Turkey. Balance Of Tourism Trade


Slide38: Tourism Economics – Balance of Tourism Trade The national balance of payments accounts can be significantly impacted by tourism expenditures. The tourism sector in Israel has moved from a net revenue producer to a net revenue exporter: 1992 $1,436.5 $1,911.0 $463.5 + 1995 $2,119.6 $2,192.9 $373.3 + 2001 $2,944.8 $1,033.9 $1,910.9 - 2004 $2,795.8 $1,552.2 $1,243.6 - 2005 $2,895.2 $1,769.7 $1,125.5 - Expenditures of Israelis’ Income from Balance Travel Abroad Tourists to Israel of Year (mil $) (mil $) Trade


Slide39: Bilateral Tourism – 2005 (000’s) 1 U.S.A. 513.3 1,139.8 626.5 1 2 France 333.7 373.6 39.9 10 3 United Kingdom 166.6 222.7 56.1 8 4 Germany 108.4 373.6 265.2 2 5 Italy 69.5 164.3 94.8 4 6 Russia 66.4 94.6 28.2 12 8 Netherlands 49.8 119.4 69.6 5 9 Spain 44.7 105.1 60.4 7 10 Belgium 27.7 34.0 6.3 13 11 Switzerland 27.4 77.4 50.0 9 15 Turkey 15.7 237.8 222.1 3 16 Greece 15.0 77.5 62.5 6 17 Cyprus 7.6 43.3 35.7 11 Tourist Tourist Arrival Tourist Tourist Neg. Trade Balance Ranking Country Arrivals Departures Balance Rank


Slide40: Demand Analysis Israel Visitor Arrival Countries of Origin Comparing 2000 to 2005 (000’s) Total: Represents 87% of total visitor loss from 2000 to 2005 1 Italy 101.9 2 Germany 67.6 3 Netherlands 38.2 4 United Kingdom 34.6 5 Spain 20.9 6 Sweden 19.3 7 Finland 17.5 8 Belgium 12.2 9 Denmark 11.3 10 Austria 8.5 Rank Country Visitor Loss


Slide41: Bilateral Tourism Change 1999 - 2005 (000’s) 1 U.S.A. 626.5 - 15.6 + 642.1 - 1 2 Germany 265.2 - 73.7 - 191.5 - 2 3 Turkey 222.1 - 281.9 - 59.8 + 4 Italy 94.8 - 66.4 - 28.4 - 5 Netherlands 69.6 - 8.5 + 78.1 - 4 6 Greece 62.5 - 98.9 - 36.4 - 7 Spain 60.4 - 21.7 - 38.7 - 5 8 United Kingdom 56.1 - 24.3 + 80.4 - 9 Switzerland 50.0 - 20.2 - 29.8 - 10 France 39.9 - 40.3 - 0.4 + 2005 2005 Trade Trade Country Balance Balance Change Rank


Slide42: Israel Tourism Balance of Trade 1999 (000’s) 1 U.S.A. 488.5 472.9 15.6 + 2 France 202.4 242.7 40.3 - 3 United Kingdom 201.2 176.9 24.3 + 4 Italy 171.4 105.0 66.4 - 5 Netherlands 91.0 82.5 8.5 + 6 Germany 75.9 149.6 73.7 - 7 Spain 65.6 87.3 21.7 - 8 Russia 55.8 79.5 23.7 - 9 Canada 55.0 34.8 20.2 + 10 Poland 41.9 16.5 25.4 + 11 Belgium 39.9 24.7 15.2 + 12 Turkey 13.8 295.7 281.9 - 13 Cypress 10.3 216.0 205.7 - 14 Greece 10.0 108.9 98.9 - Tourist Tourist Trade Country Arrivals Departures Balance


Slide43: Reaching 3.0 Million Inbound Tourists The tourism market to Israel is relatively narrow from a national perspective. Just three countries provide 50% of the visitors with ten providing 75%. From a perspective of growth opportunities, six countries provide 70% of the most likely growth market. But to achieve a million additional tourists, it will require some type of targeted marketing in twenty nations.


Slide44: Key Markets for Expanding Israel’s Inbound Tourism By Growth Potential 2005 (000’s) 1 U.S.A. 513.0 700.0 187.0 2 Italy 70.0 205.0 135.0 3 Germany 108.0 210.0 92.0 4 Nordic Countries 47.0 121.0 74.0 5 United Kingdom 167.0 240.0 73.0 6 Jordan 23.0 94.0 71.0 7 France 337.0 405.0 68.0 8 Netherlands 50.0 109.0 59.0 9 Spain 45.0 79.0 34.0 10 Mexico 24.0 46.0 26.0 11 Russia 66.0 90.0 24.0 12 Belgium 28.0 48.0 20.0 13 Ukraine 28.0 46.0 18.0 14 Turkey 16.0 29.0 13.0 15 Canada 56.0 67.0 11.0 16 Others 416.0 511.0 95.0 TOTAL 2,000.0 3,000.0 1,000.0 Rank Country 2.0 Million 3.0 Million Growth


Slide45: Tourism Balance of Trade 2.0 to 3.0 Million Inbound Tourists 2005 1,916 7,963.5 3,774.2 12,700.0 -4,736.5 2010 (est.) 3,000 14,454.9 4,240.0 16,535.1 -2,080.2 Domestic Arrivals Expenditures Departures Expenditures Year (000’s) (NIS mil.) (000’s) (NIS mil.) Deficit


Slide46: Tourism Spending in Israel - By Inbound and Domestic Travelers Total tourism spending has remained flat, comparing 2000 to 2005, with 33.3 billion NIS spent in 2000 and 33.0 billion in 2005. Comparing tourism spending patterns over this period, we see a significant shift in sector spending: Shopping is increasingly becoming a key travel experience not only within Israel, but as a component of all major destinations. Shopping 18.3% 27.7% Food 30.0% 27.4% Accommodations 20.0% 20.0% Entertainment 16.9% 11.9% In-Country Travel 8.2% 6.8% Excursions 1.8% 1.8% 2000 2005


Slide47: Hotel Room Growth Analysis At Various Levels of Inbound Tourism Currently Israel has 44,026 hotel rooms. The vast majority of person-nights is spent in Eilat (33.1%), followed by West Jerusalem, with 13.7% market share, and Tel Aviv at 11.3%. At 3.0 million inbound tourists, Israel will need to build 2,437 more rooms. At the 4.0 million level, 8,750 more hotel rooms will be required. Because of the structure of the market, Eilat will continue to be the key city in the tourism sector, needing to add 4,000 hotel rooms and increase its total market share to 27.6% of all rooms (14,563) at the 4.0 million level.


Slide48: Hotel Room Growth Analysis At Various Levels of Inbound Tourism (cont.) West Jerusalem will need to add 1,500 rooms at the 4.0 million level, bringing its total to 8,669, representing 16.4% of the available room market. Tel Aviv will need to add 1,750 rooms at the 4.0 million level, bringing it to 7,600 rooms and 14.4% of the market. At the 3.0 million level, because of over-capacity in most regions, only Eilat and the Dead Sea will need to expand room inventory.


Slide49: Hotel Room Growth Analysis By Person-Night (000’s) Current 2.0 Million 3.0 Million 4.0 Million Israeli Tourists 12,303.9 12,500.0 12,500.0 International Tourists 6,783.1 35.5% 11,250.0 47.4% 16,000.0 56.1% TOTAL 19,087.0 23,750 28,500.0 Days per Visit 3.55 3.75 4.0 Eilat Share Domestic 5,548.1 5,600.0 5,700.0 International % of Visits 11.0% 18% 22% Room-Nights 765.0 2,025.0 3,520.0 460% Total Person-Nights 6,313.0 7,625.0 9,220.0 146% Percent of Total Tourism Market 33.1% 32.1% 32.3% Room Requirements: Occupants per Room 2.5 2.3 2.1 Rooms 10,563 12,000 14,563 Occupancy Rate 65.9% 75.7% 82.6%


Slide50: Hotel Room Growth Analysis By Person-Night (000’s) (cont.) Current 2.0 Million 3.0 Million 4.0 Million Israeli Tourists 12,303.9 12,500.0 12,500.0 International Tourists 6,783.1 35.5% 11,250.0 47.4% 16,000.0 56.1% TOTAL 19,087.0 23,750 28,500.0 Days per Visit 3.55 3.75 4.0 West Jerusalem Domestic 772.1 800.0 850.0 International % of Visits 26.6% 28% 30% Room-Nights 1,847.2 3,150.0 4,800.0 460% Total Person-Nights 2,619.9 3,950.0 5,650.0 146% Percent of Total Tourism Market 13.7% 16.6% 19.8% Room Requirements: Occupants per Room 1.9 2.0 2.1 Rooms 7,169 7,169 8,669 Occupancy Rate 52.8% 75.4% 85.0%


Slide51: Hotel Room Growth Analysis By Person-Night (000’s) Current Growth from 2.0 Million 3.0 Million 4.0 Million 2.0 Million Tel Aviv Domestic 550.8 600.0 650.0 International % of Visits 23.8% 23.0% 22.0% Room-Nights 1,617.6 2,587.5 3,520.0 218% Total Person-Nights 2,168.4 3,187.5 4,170.0 Percent of Total Tourism Market 11.3% 13.4% 14.6% Room Requirements: Occupants per Room 1.6 1.7 1.8 Rooms 5,850 6,350 7,600 1,750 Occupancy Rate 65.4% 80.8% 83.5% Tiberias Area Domestic 1,062.1 1,100.0 1,200.0 International % of Visits 4.9% 5.5% 7.0% Room-Nights 331.7 618.8 1,120.0 33.8% Total Person-Nights 1,393.8 1,718.8 2,320.0 Percent of Total Tourism Market 7.3% 7.3% 8.1% Room Requirements: Occupants per Room 2.4 2.3 2.1 Rooms 3,961 3,961 3,691 Occupancy Rate 40.2% 51.7% 76.4%


Slide52: Hotel Room Growth Analysis By Person-Night (000’s) (cont.) Current Growth from 2.0 Million 3.0 Million 4.0 Million 2.0 Million Haifa/ Akko/ Nahariyya Domestic 506.7 550.0 600.0 International % of Visits 3.8% 5.0% 7.0% Room-Nights 255.5 618.8 1,120.0 438% Total Person-Nights 762.2 1,168.8 1,820.0 Percent of Total Tourism Market 4.0% 4.9% 6.4% Room Requirements: Occupants per Room 2.2 2.2 2.1 Rooms 2,376 2,376 2,876 500 Occupancy Rate 40.0% 61.2% 82.6%


Slide53: Hotel Room Growth Analysis By Person-Night (000’s) Dead Sea Domestic 1,696.3 1,800.0 1,900.0 International % of Visits 4.6% 5.0% 5.5% Room-Nights 311.9 562.5 880.0 265% Total Person-Nights 2,008.2 2,362.5 2,780.0 Percent of Total Tourism Market 10.5% 9.9% 9.8% Room Requirements: Occupants per Room 2.0 2.0 2.0 Rooms 3,915 4,415 4,915 1,000 Occupancy Rate 70.5% 73.3% 77.5% Other Areas Domestic 2,167.2 2,200.0 2,300.0 International % of Visits 24.4% 23.0% 22.0% Room-Nights 1,654.2 2,587.5 3,520.0 Total Person-Nights 3,821.4 4,787.5 5,820.0 15 Percent of Total Tourism Market 20.0% 20.1% 20.4% Room Requirements: Occupants per Room 2.2 2.2 2.1 Rooms 10,192 10,192 10,192 Occupancy Rate 46.7% 58.5% 74.5% Domestic Visitors 12,303.9 12,650.0 International Visitors 6,783.1 12,150.1 Total Visitors 19,087.0 24,800.1 Current Growth from 2.0 Million 3.0 Million 4.0 Million 2.0 Million


Slide54: Hotel Room Growth Requirements Eilat Rooms 10,563 12,000 14,563 4,000 % of Total 24.0% 25.8% 27.6% West Jerusalem Rooms 7,169 7,169 8,669 1,500 % of Total 16.3% 15.4% 16.4% Tel Aviv Rooms 5,850 6,350 7,600 1,750 % of Total 13.3% 13.7% 14.4% Tiberias Area Rooms 3,961 3,961 3,691 0 % of Total 9.0% 8.5% 7.5% Haifa/ Akko/ Nahariyya Rooms 2,376 2,376 2,876 500 % of Total 5.4% 5.2% 5.4% Dead Sea Rooms 3,915 4,415 4,915 1,000 % of Total 8.9% 9.5% 9.4% Other Areas’ Rooms 10,192 10,192 10,192 0 % of Total 23.1% 21.9% 19.3% Total Rooms 44,025 46,463 52,776 8,750 Current 2.0 Million 3.0 Million 4.0 Million Growth


Slide55: Focus on Domestic Tourism The first task in assessing tourism policy is to address the issues relating to domestic tourism. Domestic tourism provides the bulk of visits and revenues in most major countries in the world. Currently domestic tourism provides nearly 65% of hotel person-nights in Israel and is key to long-term stability of the tourism sector. In most large nations like the United States, China and India, it provides 95% or more of tourism visits. In the world’s largest tourism destination, France, only 22.7% of tourism visits are international.


Slide56: Role of Domestic Tourism (Tourists) Among Selected Countries (2005) China 99.2% 0.8% India 98.9% 1.1% Brazil 98.3% 1.7% United States 94.4% 5.6% France 77.3% 22.7% United Kingdom 73.1% 26.9% Israel 64.5% 35.5% Germany 148.5% 51.5% Country Domestic International


Slide57: Israel’s economic reform package has created a vibrant economy with long-term positive growth potential. The Shekel has performed favorably against the Euro over the last decade. Other competitive destination currencies have not fared as well, such as Turkey, Cyprus and Eastern Europe. The result has been the transformation of Israel from a relatively inexpensive destination in comparison to its competitors a decade ago to a relatively expensive destination today. Macro-Economics and Marketing Strategy


Slide58: The mid-term outlook for these regional economies will allow them to continue to exert price-pressures on competitive tourism products such as Israel. International tour operators sell a narrow range of mass market products in the region (Turkey, Greece, Egypt, Tunisia, Cyprus) that do not necessarily match the long-term objectives nor economy of Israel. Because of the competitive pricing structure and limited capacity of Israel’s tourism infrastructure (and particularly the fragile ecosystems of the Galilee and Red Sea), Israel will most likely need to move to higher value sectors of the market. Macro-Economics and Marketing Strategy (cont.)


Slide59: The Israeli tourism industry has not upgraded its accommodation infrastructure or continually invested in attractions to drive domestic tourism growth. Regional competitor countries like Turkey, Greece, Cyprus and Croatia have invested heavily in modernizing their tourism offering. Over the last five years, Croatia (at 4.5 mil population) for example, has invested over 600 million Euro in tourism infrastructure. Packaged holiday travel throughout the Eastern Mediterranean is now at parity or even less expensive than a domestic Israel holiday. The result has been a growth rate in domestic person nights of only a little over 2.0%. Domestic tourism revenues have remained flat. Domestic Tourism Issues


Slide60: Tourism travel is price sensitive. It has been demonstrated that increased inflation rates and changes in prices caused by higher taxes negatively impacts tourism visits. The ability of one country to attract tourists from another is often determined by price structure. When the Thai Bhat collapsed in 1997, for example, Australian outbound flows increased 52.8% and Indonesian arrivals to Australia fell by 28.4% in the same period. Price changes causes the substitution of one destination for another. When the Won fell in Korea in 1998, for example, its tourism jumped 10.0% that year. Macro-Economic Influences


Slide61: Israel 2000-2004 Meals in Restaurants +13.6% Hotels - 3.6% Air Fares International +44.4% Shekel Exchange Rate Versus Euro 1995-1999 increased 33.3% 1995-2004 increased 68.1% 2000-2004 increased 26.1% 1995-2004 Versus Cypriot +2% Versus Polish Zloty -9% Versus Turkish Lira -66% Price Index 1994-2003 Exchange Rate Versus Dollar


Slide62: Israel has 2.5 million employed (2005) with 3.0% directly or indirectly employed as a result of tourism (76,667). With a 3.3% annual increase in the labor force, at 3.0 million inbound tourists, approximately 115,000 people will be directly or indirectly employed as a result of tourism, raising the tourism sector to 4.0% of the National Labor force. At 4.0 million inbound tourists, 153,333 will be employed as a direct or indirect result tourism. This will represent nearly 5.0% of the work force. Job Generation


Slide63: Per Cap Expenditures (NIS) 4,191 4,818 5,423 (USD) 975 1,147 1,292 Tourism Revenues (Millions NIS) 7,963.5 14,455 21,692 Tourism Jobs Direct 1 to 40 50,000 75,000 100,000 Indirect 1 to 75 26,667 40,000 53,333 Total 76,667 115,000 153,333 New Jobs - 38,333 76,666 * 2005 Impact of Inbound Tourism Growth on Revenue and Job Generation 2.0 3.0 4.0 million million million visitors* visitors visitors


Slide64: The short answer is it should be large enough to efficiently achieve its marketing objectives. The inbound side of those objectives are to first reach 3.0 million (assess successes and failures) and to launch a strategy to achieve 4.0 million. The domestic side of those objectives is to devote sufficient funds to stimulate a higher domestic tourism growth rate (3-5% annually). Comparing the regional and European National Marketing budgets, country’s spend an average of $2 to $4 per arrival. Country’s like Italy are highly efficient at $.89/ arrival, France $1.26, Turkey $1.97, Jordan $4.44, and Croatia $3.53 are in the mid-range. How Large Should Israel’s National Marketing Budget Be?


Slide65: Several countries have relatively underperforming strategies such as Egypt ($5.85/ arrival), Ireland ($6.30) and Lebanon ($6.61) Israel currently spends $17.37 per arrival. If Israel continues this level of efficiency on a going forward level, with 4 million tourists, it would require a budget of $68.0 million. By developing a more targeted and efficient marketing strategy the cost per arrival should drop to the $6.00 level. Over the five years of the new program, marketing costs per visitor should be planned to be reduced from $15.00 year 1 ($35.0 million budget) to $6.00 by year 5 ($25.0 million budget). As various countries account for direct tourism marketing budgets in different manner, the following is an estimate of tourism marketing budgets for various countries. How Large Should Israel’s National Marketing Budget Be? (cont.)


Slide66: Spain $ 136.0 55.6 $ 47.9 $ 2.45 France $ 955.5 30.0 $ 30.7 $ 1.60 Britain $ 48.1 30.0 $ 30.7 $ 1.60 Italy $ 32.5 36.5 $ 35.4 $ 0.89 Egypt $ 48.0 8.2 $ 6.9 $ 5.85 Turkey * $ 40.0 20.3 $ 18.2 $ 1.97 Israel $ 33.0 1.9 $ 1.9 $ 17.37 Israel Goal $ 50.0 4.0 $ 4.0 $ 12.50 Jordan $ 10.0 3.0 $ 1.4 $ 3.33 Croatia $ 30.0 8.5 $ 7.5 $ 3.53 Lebanon (2004) $ 9.6 1.3 $ 5.4 $ 6.61 Ireland $ 46.0 7.3 $ 4.7 $ 6.30 National Tourism Marketing Budgets 2005 Tourism Tourist Tourism Budget Expenditure Country Budget Arrivals Expenditure (bil) Per Tourist * estimate


Slide67: Market Demand


Slide68: Turkey is the major competitor to Israel. Half of Turkey’s visitors originate in three of Israel’s target markets – Germany, United Kingdom, Russia. Turkey is forecast to become the overwhelming destination of choice in the twelve nation Adriatic and Eastern Mediterranean region by 2020, capturing one-third of all visitors to the region with 27.0 million tourists. The other key regional competitor is Egypt as it draws nearly half of its arrivals from five of Israel’s target markets: 1) Germany; 2) France; 3) Italy; 4) United Kingdom; 5) Russia Competitive Analysis – Who are Israel’s Primary Destination Competitors?


Slide69: These five markets are critical to Israel’s success as they represent five of the top ten highest tourism spenders with 30.0% of the world’s total expenditures. Germany is 1st; United Kingdom 3rd; France 5th; Italy 6th; and Russia 9th. Thus a key issue is the long-term product positioning against Turkey and Egypt. Competitive Analysis – Who are Israel’s Primary Destination Competitors? (cont.)


Slide70: In the Mediterranean, the leading tourism growth countries are forecast to be Egypt (7.4%), Turkey (5.3%), Morocco (4.9%), Croatia (4.3%). In 2010, France, Spain and Italy will still control the overall Mediterranean market with 76.6% of visitors. From a Middle East destination perspective, the largest growth markets in addition to Egypt are forecast to be Jordan (6.9%), Bahrain (6.9%); Dubai (6.6%), and Saudi Arabia (5.3%). Israel is forecast by the WTO to make the top ten Mediterranean destinations with 3.0 million visitors by 2010, or 1.1% of the regional market. Leading Regional Tourism Destinations – Growth Forecasts 2010-2020


Slide71: The Fastest growing Mediterranean tourists destination are primarily low-cost, high-experience destinations: Turkey Egypt Tunisia Morocco Croatia The slowest growing are relatively high-cost destinations: Spain Italy France Greece Leading Regional Tourism Destinations – Growth Forecasts 2010-2020 (cont.)


Slide72: Leading Mediterranean Tourists Destinations 2010 France 88,237 32.8 2.1% Spain 61,798 27.5 2.2% Italy 43,881 16.3 2.0% Turkey 16,068 6.4 5.3% Greece 14,315 5.3 2.0% Egypt 8.693 3.2 7.4% Croatia 7,454 2.8 4.3% Tunisia 6,305 2.3 3.4% Morocco 5,465 2.0 4.9% Israel 3,055 1.1 2.5% Total 99.7% Total Market 2010-2020 Rank Country (000’s) % Growth Rates


Slide73: Mediterranean Competitors 2010-2020 (000’s) France 88,237 106,093 Spain 61,798 73,867 Italy 43,881 52,451 Turkey 16,068 27,017 Greece 14,315 17,111 Egypt 8.693 17,100 Croatia 7,454 10,017 Tunisia 6,305 8,916 % of Mediterranean Visits 92.2% 90.3% Rank Country 2010 2020 Just 8 countries of the 21 nation Mediterranean market comprise the great bulk of the visitor forecast to 2020.


Slide74: Middle East Tourism Countries of Origin 2010 Forecast Middle East Countries 39.0% Europe 30.7% South Asia 8.5% East Asia 7.0% America’s 5.1% North Africa 3.7% Other 6.0% 100.0% 24% of world tourism over the next decade will be long haul (longer than 4 hrs) while 76% will be intraregional. By 2010 approximately 60.0% of Middle East visitors will be long haul.


Slide75: Examining visitor arrival patterns clearly shows a highly segmented market in the Middle East, most likely reflecting bi-lateral political traditions that are reflected in international tour companies. Where France and Germany play dominant roles in Egyptian tourism, they are nearly absent from Dubai or Bahrain. Saudi Arabia, for example, has a large presence in Bahrain, Lebanon, and Jordan, but very little in Dubai and Egypt. That travel patterns follow traditional political relationships are clearly exampled by Great Britain where they have nearly equal annual visitations to Israel, Bahrain and Dubai, but almost no presence in Lebanon which has been a traditional French alliance. Market Segmentation


Slide76: Tour Growth Forecasts of Competitive Markets 2010 U.S. 158,416 388,948 56,768 69,123 700,00 France 1,012,347 135,402 405,060 United Kingdom 112,926 667,581 172,426 205,134 240,000 Germany 1,161,630 57,414 210,000 Italy 935,933 205,000 Russia 193,274 388,462 90,000 Canada 34,032 67,000 Saudi Arabia 1,436,549 413,853 4,035,136 Iran 526,622 India 240,668 411,304 Pakistan 247,689 93,682 Egypt 1,579,163 143,670 107,761 48,574 Syria 2,154,693 Kuwait 289,104 228,859 212,259 Total 8,521,486 6,285,718 Other 3,050,000 Overnight 2,791,748 8,693,000 3,639,013 1,716,000 3,797,281 Jordan Egypt Dubai Lebanon Bahrain Israel


Slide77: One primary analytical tool to determine the most efficient sources of tourism development is to evaluate penetration rates. Penetration rates illustrate the percentage of people from a given country that visit. The higher the percentage that visit, the greater the penetration. Evaluating the ratio between inbound and outbound penetration rates allows one to see what countries have highly favorable or unfavorable bilateral tourism programs. Six countries have relatively high penetration rates for visiting Israel in 2005. France is the highest, followed by the Netherlands, Switzerland, the United Kingdom and Sweden. These same six countries also have high outbound penetration rates with Belgium (number 1), the Netherlands (number 3), the United Kingdom (number 7), and France (number 9). Market Penetration


Slide78: The ratio between inbound and outbound penetration rates produces a factor which allows one to compare the percentage of people that visit Israel from a country to the percentage of people from Israel that visit that same country. Belgium is the only country that had a higher proportion of its citizens visiting Israel than Israelis visiting Belgium. Other countries with favorable ratios include Poland, the Netherlands, Cyprus, Canada and Italy. Countries with unfavorable ratios include Turkey, United States, Russia, Germany and Greece. Market Penetration (cont.)


Slide79: Comparing market penetration rates from 2000 to 2005, one finds that this ratio is relatively stable and a moderately accurate predictive tool 2000 2005 Netherlands 2 2 France 3 1 Belgium 4 5 United Kingdom 5 4 Italy 6 10 United States 7 7 Market Penetration (cont.)


Slide80: Tour Growth Forecasts of Competitive Markets 2010 Cyprus .7 .0138 .0327 4 2.4 Netherlands 15.7 .0058 .0125 3 2.2 France 57.7 .0042 .0368 9 8.8 Belgium 9.9 .0040 .0037 1 0.9 United Kingdom 57.6 .0035 .0268 7 7.7 Italy 55.2 .0031 .0159 6 5.1 United States 281.1 .0017 .0717 13 42.2 Canada 31.4 .001 .0053 5 3.1 Spain 38.3 .0017 .0132 8 7.8 Poland 29.0 .0014 .0025 2 1.8 Greece 10.2 .0010 .0165 10 16.5 Germany 82.4 .0009 .0227 11 25.2 Russia 135.6 .0004 .0120 12 30.1 Turkey 70.4 .0002 .0448 14 224.0 Inbound Outbound Outbound Ratio of Population Market Market Penetration Inbound Rank Country (mil) Penetration Penetration Rank to Outbound


Slide81: Visitor Market Penetration 2005 (000’s people) United States 513.3 0.17% 7 France 333.7 0.57% 1 United Kingdom 166.6 0.28% 4 Germany 108.4 0.13% 9 Italy 69.5 0.12% 10 Russia 66.4 0.05% 13 Canada 55.9 0.17% 8 Netherlands 53.1 0.33% 2 Spain 44.7 0.10% 11 Belgium 27.7 0.27% 5 Switzerland 27.4 0.30% 3 Australia 21.1 0.10% 12 Brazil 19.1 0.01% 15 South Africa 18.1 0.04% 14 Sweden 17.7 0.20% 6 Visitors Percentage Rank Rank to of Market by Magnitude Country Israel Penetration Penetration


Slide82: Three cities have long dominated tourism in Israel: West-Jerusalem, Tel Aviv, and Eilat. During their highest visitation year, they commanded 70.8% of the countries person-nights. In 2005 these three cities captured 62.3% of person-nights. Five other cities provide the majority of the remaining person-nights: Tiberias, Dead Sea, Netanya, Haifa and Herzeliya. Where Do International Visitors Stay Israel Hotel Person-Nights


Slide83: Where Do International Visitors Stay in Israel Person Nights West-Jerusalem 27.2% 24.3% 27.2% Tel Aviv 23.8% 16.4% 24.6% Eilat 11.3% 17.2% 19.0% Dead Sea 4.6% 4.3% 4.7% Tiberias 4.9% 8.6% 8.6% Netanya 4.2% 5.1% 5.6% Haifa 3.0% 1.7% 3.0% Herzeliya 2.8% 1.6% 3.3% 81.8% 79.2% 96.0% 2005 2000 High Year


Slide84: Leading Tourist Destinations of Israel 2005 Tower of David 492.0 5.5% The Israel Museum 456.1 5.1% Massada 418.8 4.7% Caesarea 358.5 4.0% Gan Hashlosha National Park 332.0 3.7% Visitors Market Rank Destination (000’s) Penetration


Slide85: Travel Trends and the Reasons People Travel


Slide86: A significant reduction in `sun and beach’ holidays in Europe due to increasing variety of places to get this experience from cheaper locations. `Sun and beach’ holidays are becoming globally commoditized. European tourism is changing from one long holiday to several short breaks lasting three to seven days. New tourism is increasingly sophisticated, seeking fuller experiences giving rise to rural cultural tourism and niche tourism replacing packages holidays. Forty percent of European travelers consulted the internet before booking. Fully 27% bought their trip online. Increased competition is causing price pressures on European hotels and an overall lower expenditure per tourist. European Tourist Trends


Slide87: The over 30 years of age group accounts for 80% of global tourism. Older age groups will continue to increase in size in both the short and medium terms. As income increases worldwide so does time pressure. Half of travelers seek to simplify their lives by buying all-inclusive programs. The ageing population has an increasing concern for health and will drive growth in health tourism products. Increasing security, health and immigration concerns will lead to increasing government controls on travel. Tourist Trends


Slide88: The image of destination countries will increasingly be linked to security and health issues, although travel downturns will become shorter lasting - only months instead of years. Cultural tourism motivations are shifting towards a more general interest in global cultures than a specific culture. Travelers are seeking new experiences and deeper experiences during their visits. Repeat visitations will decline and it will grow more difficult to build repeat visitor loyalty. The internet will become the prime source for seeking advice on destination selection, particularly from travel blogs. Tourist Trends (cont.)


Slide89: Promotional campaigns will become less important while branding and clear positioning will become more relevant. Marketing messages will shift to experiences and feelings – they will be based on what you can do and what one will personally gain. Opening of new air routes and budget airlines will provide opportunities for countries to develop new markets. To limit outflow of funds for their ageing populations, nations will make residency requirements for state pension entitlement, thus slowing the long-term trend in out-of-country homes for European pensioners. Tourist Trends (cont.)


Slide90: The primary reason people travel is for leisure and recreation, representing nearly 50% of all international visits. The majority of the remaining travelers are doing so to visit family and friends (19%) or business travel (15%). Israeli’s primarily travel for leisure and recreation, accounting for over three-fourths of their international trips, much higher than the norm. Visitor’s to Israel, on the other hand, come for very different reasons. Only 24% come for leisure while 39% are visiting family and friends. Over the last decade, leisure visits dropped fro 39% while visiting friends and relatives increased from 17% to 39% in 2004 and 34% in 2005. Reasons People Travel


Slide91: The reason for these significant changes is most likely the result of two trends brought about by the Intafada. The first is an increase of Jews visiting relatives and the second is a decrease in Christian leisure tourists. Examining the religious affiliation of inbound visitors supports these findings. First, most of the visitors from leading source countries are Jewish – from as high as 90% from France to 68% from the United States. Secondly nearly half of Christian’s purpose to visit is a pilgrimage. Overall, Jews account for 53% of visitors while Christians contribute 23%. Reasons People Travel (cont.)


Slide92: Travel Survey 2004 Leisure and recreation 50% 24% Visit Family and Friends 19% 39% Business & Professional 15% 19% Health / Pilgrimages / Educational 10% 10% Other 6% 8% Total 100% 100% Travelers to Israel by Religious Affiliation by Country Canada France Germany U.K. U.S. Total Jews 66% 90% 17% 73% 68% 53% Christians 15% 6% 50% 17% 15% 23% Others 19% 4% 33% 20% 17% 24% Reasons People Travel Internationally To Israel


Slide93: Travel inhibitors (negatives) are the more dominant criteria in the selection of a destination than positive benefits. The balance between the two build the primary image of a destination. Destinations that offer the most benefits with the least inhibitors are most often selected. Past travel experience to a particular destination increases the intention to travel there again, except for the high novelty – seeking traveler. The factors that most influence return visits are good value food, high-value shopping and a variety of things to do. The factors that most negatively influence a return visit are travel barriers ( difficulties ) and social and environmental problems. Destination Selection and Repeat Visitation


Slide94: Travel motivations, destination image, and travel barriers are the most important factors that influence travelers to revisit destinations. The more favorable the image of a destination, the more likely a repeat visit. Despite belief to the contrary, studies have demonstrated that traveler satisfaction does not have an impact on the likelihood of repeat visits. In Israel, the majority of tourists are repeat visitors. Certain countries have very high repeat patterns such as France (70%-80%) because of the familial connection between French and Israeli Jews. Destination Selection and Repeat Visitation (cont.)


Slide95: In the mid-nineties, repeat visits to Israel were under 40.0% and the majority of visitors were Christians. But over the ensuing decade, the number of separate individuals visiting Israel has dropped significantly along with an increase of repeat visits by the international Jewish population. Destination Selection and Repeat Visitation (cont.)


Slide96: Studies of European Tourism indicate that price competitiveness is a central variable driving change in market share this last decade. Price competitiveness is comprised of: Relative Pricing ( nominal rates ) Exchange Rates Airfares Expenditure Budgets Destination Selection and Repeat Visitation


Slide97: International tourism studies demonstrate that increased destination attractions and activities reduce seasonality. Seasonality


Slide98: Israel is generally viewed by Europeans as a potentially unsafe destination. The majority of Europeans oppose Israeli actions in the West Bank and Gaza Strip thus impacting the image of Israel as a desirable holiday destination. In its attempt to position itself as a compelling Eastern Mediterranean destination, Israel faces strong competition from Greece, Turkey and Cypress. They are all closer to Europe and offer more developed tourist attractions and competitive pricing. Negative Tourism Growth Factors


Slide99: High security constraints are viewed as uncomfortable for incoming tourists. Domestic tourism is not likely to undergo much expansion. Although 44% of Israeli Jews expect to take at least two holidays a year, over half take their second vacation abroad. Unlike many other countries, Israel has not permitted low cost carriers to operate. Air fares to and from Israel are relatively expensive compared to other European destinations. Negative Tourism Growth Factors (cont.)


Slide100: Domestic Tourism


Slide101: Israelis are increasingly taking shorter holiday trips with the average of a week or less growing from 52% in 2000 to 56.5% in 2005. Nearly one-third of the trips are 1-3 days. Shorter trips are due mainly to short trip packages offered by resorts in Eilat, Greece and Turkey. Trips are highly focused in the summer period, (July-August) representing 26.4%. The holiday season in September and October is particularly important accounting for 22.0% of all holidays taken. Very few trips are taken during the winter (December-February) accounting for just 14.0% Domestic tourists have very different travel preferences from international tourists. Cities are magnets for international tourists while domestic tourists generally use holiday travel to leave city environments for more rural settings. Israeli Travel Habits – Holiday Length of Trip and Seasonality


Slide102: Eilat continues to grow as the mainstay of domestic tourism accounting for 42.5% of all domestic person-nights in hotels in 2005. The Dead Sea and Tiberias are second and third with each garnering near 13% of domestic trips. Jerusalem’s popularity as a trip destination has declined from 7.0% of trips in 2000 to just 5.9% in 2005. The decline in Jerusalem domestic tourism is expected to continue as a result of two factors that will not change in the foreseeable future. The first is that the population is becoming more Orthodox, which keeps many attractions closed on Saturdays, and the large number of Palestinians in the capital. Role of Eilat in Domestic Tourism


Slide103: Expansion of domestic tourism is limited. Israel has a big difference in disposable income levels with a large portion of the population unable to afford holiday travel. From 2003 to 2005, the number of domestic tourism trips grew only 3.3%. Because of these and other structural issues, the leisure and recreation expenditures of Israelis have increased only 1.5% from 2001 to 2005. Growth of Domestic Tourism


Slide104: Low cost charter airlines and packaged travel in Israel have made holiday travel to Turkey, Cypress and Greece as affordable as domestic holidays. The Open Sky Initiative will result in a significant increase in outbound domestic tourism – most likely reducing current domestic tourism levels. Growth of Domestic Tourism (cont.)


Slide105: Israeli Internal World Tourism Tourism Rank Rank Comparison of Outbound Israel Tourism to Global Patterns France 1 3 Spain 2 7 United States 3 1 China 4 - Italy 5 6 United Kingdom 6 4 Mexico 7 - Germany 8 5 Turkey 9 2 Austria 10 - Cypress 4 Israeli tourists exhibit the same travel patterns as the majority of international tourists with 70% of their top 10 travel destinations being top 10 world destinations.


Slide106: Israel Tourist Travel Products Purchased in 2005 Flight Only 33.0% Package Holidays 21.0% City Breaks – short package holiday 17.0% Accommodation Only 13.0% Adventure Treks 5.0% Cruise 2.0% Other 9.0% 100.0%


Slide107: Marketing


Slide108: Tourist motivations have been shown to be multidimensional. Tourists want to have more than one experience at a destination. Tourists make comparisons between destinations when selecting a holiday. Research has demonstrated that their most important decision is to reduce the probability of making a bad choice. The positioning of Israel needs to heighten tourists interest and reduce their anxiety about selecting an unsuitable holiday to increase demand. How Tourists Select Destinations


Slide109: The Five most important factors for a tourist selecting a holiday destination are in priority order: Choosing a Destination Accessibility Cost/Value Safety & Security Condition of the destination’s facilities Image – extent to which the destination is well known and desired by each target market


Slide110: Other factors in selecting a destination in priority order: Supporting Factors Hospitality – The level of friendliness by the destination’s residents Culture & History – Particularly iconic experiences – the Great Barrier Reef, the Eiffel Tower, The Great Wall, Buckingham Palace, etc. Physiography and Climate Mix of Activities Quality of Service


Slide111: The factors that are not critical in the destination selection process in priority order, starting with least critical: Factors Not Critical Entertainment – Performing arts contributing to tourism Carrying Capacity – Extent of crowding Interdependence – Association with other area destinations Special Events – Staged tourist programs


Slide112: Perceptions of risk are the primary constraints on travel for 34 to 54-year olds. Risk issues in priority order: Risk Perceptions Holiday may not be personally satisfying I might become ill while on holiday The holiday may not give good value I might be put in danger of getting hurt The holiday might not reflect my personality Problems may occur in travel arrangements People might get a negative opinion of me taking such a holiday Problems might arise with the facilities Some aspects of the holiday might be a waste of time


Slide113: Positioning a destination market requires addressing travelers key risk factors: Positioning Health Political Instability Terrorism Unfamiliar Food Cultural Barriers Religious Dogma Crime Women perceive a greater degree of risk regarding health and food. Experienced travelers downplay the threat of terrorism.


Slide114: There are several primary methods to approach the defining of a target market: How Different Market Segments Approach Travel Decisions Geographical Lifestyle Age Religious/Cultural Income Over the last two decades, travel marketing has been moving from primarily geographical campaigns ( a local travel agent ) segmented by income levels, to more global campaigns targeting certain lifestyles. The following represent the three most likely lifestyle groups to undertake a long-haul holiday:


Slide115: The best potential lifestyle market for travel in general. Socially Aware Most educated segment of the population. Holds professional/ white collar jobs. Upper-middle income Motivated by social issues Seek new experiences These tourists seek tourism products that offer new experiences and emphasize learning. They are discriminating, demanding and very value-for-money conscious. They do extensive comparative research. They are also the most averse to the risks of becoming ill and of being put in danger on a trip They are the most likely lifestyle group to travel alone (not in a tour).


Slide116: The second largest travel lifestyle group is characterized by the following traits: Achievers Well educated Defined by their career success Traditional view on family life Two-income families Travel is part of their image Tourism emphasizes conspicuous consumption Travel with friends or family members Not concerned about illness or danger Does not travel for self-betterment Not concerned about getting good value for their money Prime targets for luxury tourism Travel to brand-name destinations – especially if the product is exotic.


Slide117: The third largest travel group is characterized by the following traits: Youthful Enthusiasts Younger couples Upwardly mobile, both work Unwilling to defer gratification Borrow to finance their lifestyle Avid, action-oriented consumers Least risk-averse High spenders Consumers of travel experiences – Challenging themselves physically Spiritual experiences Broadening their awareness Like new, off-beat tourism products Retreats to work with artists Expedition camping White-Water rafting


Slide118: Where to market Israel is certainly as vitally important as how to market it. For example, France is the second largest source of Israel’s tourism. The issue with France is how much further can the current level be expanded. French tourists to Israel are 90% Jewish with under 30,000 French Christians visiting in 2005. However, in neighboring Lebanon, five times that many French Christians visit each year. Has France reached its potential or can the French Christian market be significantly attracted? Travel Decisions


Slide119: Before any strategy for French marketing can be successful, a full understanding of the specific market constraints need to be clarified. What are the specific negatives in the French Christian community, and can they be overcome? What are the specific positives that can be amplified in targeted niche markets? Each geographical area has its own complex set of potentialities concerning Israel and future Israel campaigns need to carefully address each market’s level of opportunity to determine how much budget to allocate. Travel Decisions


Slide120: Terrorism presents a major challenge to the tourism industry, but past evidence suggests that destinations can quickly recover from terrorism experiences. For example, following the October 2002 terrorist attack in Bali, Australian tourists switched to Fiji, New Zealand and North Asia, causing a 60% decline in Australian visits to Bali. When the advisory notice was lifted, the Australians returned to near normal numbers to Bali. Effects of Terrorism Are Short-lived


Slide121: The same consumer responses have been witnessed in several markets suffering from terrorism attacks. The issue is one of perception. When the perception of terrorism is reduced, consumers remove it as one of their travel constraints The primary obstacle for Israel regarding risk perception is that the media keeps Israeli confrontations in the public eye, thus keeping safety and security as a travel decision concern. Effects of Terrorism Are Short-lived (cont.)


Slide122: What Israel cannot do is to market something it isn’t. Mass tourism is built around easy accessibility, low cost/ high value, safety, and iconic identities Tourists prefer hospitable people and pleasant climates but they’re not essential for tourism success. Quality of service is not a tourism decision factor and hotel quality is sacrificed in the decision process for low cost. Israel’s current tourism market represents less than 0.5 million people who travel there for leisure/ holiday. Should Israel Be a Mass Market Destination


Slide123: By 2010 Turkey, for example, is forecast to have 11.0 million leisure tourists. Israel at a 3.0 level will have approximately 1.2 million leisure tourists, one-tenth that of Turkey. Given that Israel does not benefit from intra-regional tourism, Israel will need to market in many countries throughout the world to achieve its target tourism levels. Should Israel Be a Mass Market Destination (cont.)


Slide124: Mass Market tourism is built around low-cost leisure packages which Israel’s price structure will not prove a viable competitor Mass market tourism is built around choices between high-desire destination’s. Israel is not perceived among the world’s top high-desire destinations Because Israel’s market base to reach 4.0 million tourists is so large and varied, mass market programs would not be economically viable. Israel Cannot Pursue Mass Market Tourism For Three Reasons: In order for Israel to achieve its target tourism levels, it will need to appeal to targeted niche markets with value-add sensibilities.


Slide125: With a limited demand for destinations in the region, competitors like Turkey, Greece and Cyprus are highly price-elastic. This means that there will be stiff price competition to maintain their tourism growth A majority of tourists to Turkey and Greece, for example, travel on all-inclusive package tours, and an additional 15% are on partially organized tours. Because of the product structure offered by international tour operators, the majority of travelers to all three countries are drawn from just four European countries. Regional Competitors


Slide126: Turkey welcomed 1.5 million British visitors in 2005 Turkey is third in the UK’s holiday market after Spain and Greece The Great majority of British people visit the coastal province of Mugla. The vast majority of the 4.2 million German visitors in 2005 visited the province of Antalya. Competitors - Turkey


Slide127: It has been demonstrated that inbound flows of tourists vary directly with the number of travel agents promoting a given product in the generating country. In many countries, particularly those that have not fully adapted to internet lifestyles, travel agents exert a strong influence on destination choices. The development of niched tourism strategies can threaten the interests of prevailing tour operators that often control the supply side of the equation. Tour Operators


Slide128: Israel has three large-sized charter wholesalers as well as a number of medium-size firms that work with international tour operators and control the majority of leisure holiday visits. There is no question that packaged tours will play a role in Israel’s future growth strategy, however, in order to develop the large-scale niche market strategy that will be essential to achieving visitation targets, they will play only a moderate role in the overall strategy. Tour Operators


Slide129: The role of online travel planning will quickly dominate niche travel marketing. In the United States, online planning has already displaced travel agents. 58% of U.S. travelers plan their vacation online compared to 23% who use a travel agent. Online travel bookings in the U.S. reached $60.0 billion in 2005 and has been growing 20% annually. Supplier sites accounted for 58% of airline and hotel bookings in 2005. The dominant on-line search strategy is to search for the lowest price. 72% of U.S. travelers plan leisure travel under eight weeks before taking a trip. Online Booking


Slide130: Internet purchases for Israeli hotels were only 5.1% in 2005 Most domestic tourists in Israel use the internet only for price comparisons. Inbound tourists are expected to be the main users of online booking for some time growing to 15-20% of all international bookings over the next few years. Internet Purchases for Israeli Hotels


Slide131: Visuals of the accommodations 28% Written description 23% Information about destination 17% Property star rating 14% Customer reviews 13% Brand hotel 11% Loyalty program 8% Leading Factors In Choosing a Hotel Online


Slide132: United States (18%) est. (18%) est. 18% 7.7% 8.0% United Kingdom 14% 26% 34% 5.6% 18.0% Germany 5.4% 45% 12% 22% 13.0% Tourism Interests Google Searches October 2006 Jewish Christian Flight Hotel Themes Themes Packages Packages Eilat


Slide133: Israel hotels dominate tourism accommodations, accounting for 91% of accommodation revenue in 2005 National chain hotels provide the majority of rooms holding approximately 70.0% of all visits The second largest accommodation sector is self-catered apartments accounting for 4.3% of accommodation sales The proportion of hotels considered 4 and 5 star represent about 45% of all rooms. Internet Purchases for Israeli Hotels


Slide134: Eilat hotels total 30,700 beds in 2005, 28% of the total country bed-count. The top 5 visitor markets have 75% of the country’s bed share. Internet Purchases for Israeli Hotels (cont.) Eilat 30,700 27.7% 65.1% Jerusalem 20,500 18.5% 35.0% Tel Aviv 11,900 10.7% 48.4% Tiberias 11,200 10.1% 36.3% Dead Sea 9,200 8.3% 63.9% 75.3% % of Bed Beds Market Occupancy


Slide135: Preconceived images of destinations play a large role in tourist’s travel decisions Image differentiates tourist destinations from each other Family ties to Israel also color the countries Identity. The majority of American Jewish youth think of Israel primarily as a place of history, tradition and holy places, while French Jewish youth view Israel as a place to live and work. One of the main reasons for the difference in attitude is that 78% of French Jewish households have family members living in Israel The Largest difference in the image of Israel is between Male and Females. Young men relate most strongly to images of Israel such as the Israeli Defense forces and danger, while young women relate most strongly to roots, tradition and holy places. Israel Identity


Slide136: The tourism industry caters to a traveler’s expectations of a place. It attempts to deliver an experience travelers are seeking. But as a country of origin creates vastly different preconceptions and expectations, messages about identity need to be crafted differently for each target market The creation of the State of Israel altered the images of a Jewish homeland from predominately a spiritual concept to a physical reality Jewish tourism to Israel combine all the elements of contemporary tourism – transformative journey, heritage tourism, pilgrimage, and pleasure vacation. Israel Identity (cont.)


Slide137: The symbols of Israel differ by country of origin. For example, Jewish visitors from the U.S. view spirituality as one of the top ten identities of Israel, while the more secular French society place it 25th. Some of this difference is accounted for by ethnic background. The U.S. has a predominately Ashkenazi Jewish population (79%), as well as the U.K. while the majority of French Jews (70%) are Sephardic, primarily from Algeria and Morocco. Israel Identity (cont.)


Slide138: Symbols Of Israel By Jewish Youth Visitors (Rank Order) Religion 1 1 2 Jerusalem 2 2 1 Holy Places 3 3 4 Hebrew 4 4 3 Tradition 5 6 9 History 6 5 8 Spirituality 7 11 25 Kibbutz 8 7 10 Roots 9 8 6 Tel Aviv 10 10 11 Masada 11 23 22 Tourism 12 12 23 Israeli Army 13 13 5 Hope 14 14 7 Identity 15 9 18 Eilat 24 18 20 U.S. U.K. France


Slide139: Scenic areas 33.8% 39.6% Museums 38.1% 29.2% Historic Sites 21.9% 27.0% Other 6.2% 4.2% Israel Tourism Attractions by Sector by Destination Museums have two primary visitor groups – international Jewish visitors and school visits Scenic areas and national parks are primarily visited by domestic Israelis Historic site tourism has recently benefited from the rise in cultural tourism Shopping tourism in border regions have become well-established patterns in many regions of the world. Creating a free-trade border center, international level discount center on specialty items like diamonds or other shopping enhancements.


Slide140: Jewish solidarity and family travel is a well-established niche market that can be expanded Christian pilgrimage travel also has potential in key markets throughout the globe. On the Mediterranean, there are 700,000 pleasure yachts traveling throughout. Although France is the leader with 120,000 moorings and Italy with 85,000 other countries are developing large marina complexes to attract this growing market. Turkey Currently has 7,000 moorings with another 3,000 under constructions Secondary/ Niche Markets There are a host of niche markets that Israel can appeal to:


Slide141: International golf tourism also has demonstrated strong potential for successful development in the Eastern Mediterranean with a target goal of 100 courses by 2020 in Turkey alone. Examples of other niche markets include wine tours, bird-watchers, sailing, scuba expeditions, wind-surfing, and the like. Second home development tourism shows some long-term potential as well. Several coastal areas of Europe have reached 50% penetration of holiday residences. Research suggests that second home buyers transiting into primary residences are primarily motivated as much by cultural factors as they are by the environment. Secondary/ Niche Markets There are a host of niche markets that Israel can appeal to:


Slide142: Strategic Plan


Slide143: Promoting/ incentivizing domestic tourism growth. Increasing per capita tourism expenditures. Addressing the commoditization of sea & sun destinations. Sizing the accommodation infrastructure to support 3.0 - 4.0 million international visitors. Creating a positive balance of tourism trade. Developing bi-lateral strategies to address the negative balance of trade created primarily by domestic travel to the United States, Germany, Great Britain, and the Netherlands. Strategic Issues Developing a National and Regional strategy requires addressing the following action plans:


Slide144: Determining the locations in Israel where the primary tourism investments need to be made. Assessing the value of adopting an `open skies’ policy Designing a positioning for Israel to clearly differentiate it from competitive destinations. Determining what combination of strategies yields higher revenues. Strategic Issues (cont.) Developing a National and Regional strategy requires addressing the following action plans:


Slide145: Role of Domestic Tourism Because of the past periodic volatility of international tourism, and because domestic tourism has been a majority of hotel person-nights since 1998, Israel should ensure the financial viability of its tourism industry by prioritizing its strategic planning around enhancing the domestic market.


Slide146: One key strategic issue is to plan to accommodate the potential cyclic nature of visitor arrivals in Israel. Of primary visitor cities in Israel, Eilat demonstrates the least financial variability due to its remoteness from the clashes between Israel and its neighbors. Tel Aviv, for example, had a revenue per available room (RevPAR) of $109.00 in October 2000, and fell to $38.00 by April 2003 before returning to $150.00 by January 2006, a decline of 65%. Jerusalem went from a RevPAR of $99.00 in October 2000 to $30.00 in April 2003, a decline of 70.0% Incentivizing Domestic Tourism


Slide147: Eilat on the other hand, has proven more stable in maintaining RevPAR. In October 2000, Eilat had a RevPAR of $69.00 which fell to $47.00, a decline of 31.0%, less than half of Jerusalem and Tel Aviv. By January 2006, Eilat had returned to its past RevPAR highs while Jerusalem remained 12% below the highs and Tel Aviv 4% below. Incentivizing Domestic Tourism (cont.)


Slide148: Eilat holds the majority share of the domestic tourism market and one-third of the overall tourism market. In 3.0 – 4.0 million visitation models, Eilat still maintains a one-third overall share. Being key to the domestic market, Eilat is thus the central destination in determining the overall success of Israel’s tourism sector. Eilat Development


Slide149: The developmental necessities to attract leisure domestic travelers to Eilat are much the same as those necessary to attract international leisure tourists: Allow low-cost flights to operate domestically and from Eilat internationally. Significant increase in shopping opportunities (ideally a major outlet brand mall, and a regional wholesale trading center to serve Israel, Jordan, Egypt). Develop world-class dining experiences. Significantly enhance entertainment and cultural attractions. Eilat Development (cont.)


Slide150: Secondary strategies include: Support entrepreneurial vitality to pursue niche markets Develop market niched programs: Golf Bird-watching Scuba expeditions Sailing Wind-surfing Off-road thrill rides Eilat Development (cont.)


Slide151: The more encompassing the Eilat experience is, the more visits that can be generated. Eilat has the ability to be positioned as one of the most encompassing cultural and leisure vacation centers in the world: Basing from Eilat one can easily visit some of the world’s most intriguing sites – Petra, St. Catherines, the Sinai, the Great Pyramids (needs a direct flight to Cairo), the Dead Sea, and sites on the Red Sea. To compliment these unmatched cultural and geographical sites, a rich set of leisure activities can be more fully developed including world-class dining, entertainment and shopping. Positioning Eilat As The Keystone To Tourism Development


Slide152: Eilat has the ability to be positioned as one of the most far reaching vacation centers in the world: Add to these amenities the sand and sea experience with boating, playing with dolphins, and water adventure sports and Eilat presents sufficient product magnitude to compete with any Eastern Mediterranean destination. Positioning Eilat As The Keystone To Tourism Development (cont.)


Slide153: The majority of tourism expenditures in Israel will be spent in three cities – Eilat, Tel Aviv, and West Jerusalem. Because of the religious and more conservative nature of West Jerusalem, the community is not conducive for creating new revenue producing programs/ facilities for tourists. As such, the only two cities where a sufficient tourism infrastructure could be developed are Eilat and Tel Aviv. As the majority of the nation’s tourism revenues are already generated by Eilat, and as it has the highest potential to be a regional tourism center, it represents the clearest strategy for increasing overall domestic and international tourism expenditures. Increasing Per Capita Tourism Expenditures


Slide154: If Eilat does not become the primary tourism focus of the country for leisure and cultural tourists, then the current infrastructure will decline and greater numbers of domestic tourists will elect to travel abroad, thereby compounding the balance of tourism trade shortfall. Increasing Per Capita Tourism Expenditures (cont.)


Slide155: Israel’s international marketing strategy needs to address four key questions before embarking upon any shifts in its tourism sector: How can Israel gain a higher market share in its current markets with its current products? What new market segments are available with its current products? What new or modified products will appeal to current market segments? What combination of these strategies will yield the highest total revenue? Only after these four issues are clearly understood should Israel embark upon a growth strategy based upon offering new products to new markets. Defining Israel’s International Marketing Strategy


Slide156: Strategies to increase average length of stay of existing visitors. Strategies to increase the purchase of goods and services. Cooperative strategies to attract tourists who are visiting other destinations in the region – Egypt, Jordan, Turkey, Cyprus, Greece. Undertake cooperative promotional campaigns with regional destinations to increase multi-destination and stop-over holidays. What Combination Of Strategies Yields Higher Revenues


Slide157: Create bilateral tourism agreements with countries with similar market profiles which offer vouchers or special packages to encourage a visitor of one of the countries to visit the other the next year. Subsidize air and sea travel between them; such as between Sharm El Sheikh and Eilat or Cairo and Eilat. Establish agreements to structure multi-destination stop-overs for long-haul passengers such as a stop in Turkey for a visit on the way to Israel. Multi-destination travel in a single package through cooperative regional agreements can more easily satisfy Mediterranean tourists’ desires to travel in more compelling and efficient ways through the region. What Combination Of Strategies Yields Higher Revenues (cont.)


Slide158: In 1995, 3 million passengers used LCC’s in Europe. By 2005 it had grown to 30 million passengers flying on 65 airlines with an expected growth rate of 13% annually for the next few years. Low Cost Carriers - Two-Way Street


Slide159: LCC’s have three effects on tourism: The first is the `push effect’ where destinations experience a significant increase in tourism a few years after introduction of LCC’s The second is the `pull effect’ where regions experience an overall decrease in domestic demand. Domestic tourists take advantage of the low-fares to travel abroad and their outbound traffic more than offsets inbound growth. The third `pattern shift effect’ where secondary airport regions that host the LCC’s grow in terms of room supply and decreases occupancy rates in other regions. Low Cost Carriers - Two-Way Street (cont.)


Slide160: Over the past five years several scholarly papers have addressed the economic impact of discount airlines on a destination’s local tourism economy. Their findings are summarized as follows: Discount airlines primary market group are 25 – 34 years accounting for 35% of their traffic load. The 35 – 49 year olds account for another 28%. The market is primarily lower middle income – 2/3 of total passengers on LLC’s are new flyers. The LLC travelers prefer to visit as individual tourists and do not subscribe often to package tours. The restaurant pattern is similar to the hotel business. Economic Impact of Low Cost Carriers


Slide161: Findings are summarized as follows: Perhaps most important for this discussion, accommodations within 10 kilometers of the airport receive increased traffic from these visitors, however those with the 10-40 kilometer band generally show no increased occupancy. The restaurant pattern is similar to the hotel business. Economic Impact of Low Cost Carriers (cont.)


Slide162: The Distance from the hotel to the airport has been an essential factor in whether a discount airline increased regional tourism business. There appears to be three factors at work here. The first is that discount air carriers tend to land later in the evening and visitors spend their first night at hotels near the airport. The second is that these are younger travelers that are staying a night or two and may visit three hotels during a week holiday touring an area. The third is that people prefer to be near an airport when they are only staying 2 or 3 nights on a get-away holiday, which is becoming increasingly common. Economic Impact of Low Cost Carriers (cont.)


Slide163: If Low Cost Carriers are allowed to land at Ben Gurion Airport, preliminary estimates are that an increase of 25% of inbound passengers (400,000) is within expected norms. The impact on outbound domestic passenger traffic from Ben Gurion would be an increase of 15% or 550,000 more outbound passengers. The net result of adopting Ben Gurion as the low-cost gateway will likely be a net tourism balance of trade loss of over 100,000. Economic Impact of Low Cost Carriers on Israel


Slide164: Using Eilat as the port of entry for low-cost airlines would increase (depending upon the comprehensiveness of tourism development ) inbound passenger traffic 100,000 – 150,000 and outbound around an equal amount – 100,000 - 150,000. If one includes the net economic impact on Israel Legacy Carriers (inflation adjusted fares dropped 30%, 1990-2000, in the U.S. ). The introduction of discount airlines to Ben Gurion airport would have a significant negative impact on Israel’s balance of tourism trade. The introduction of a LCC into the Eilat market would most likely have a neutral net impact. Economic Impact of Low Cost Carriers on Israel (cont.)


Slide165: Made land freely available for tourism investments. Provided grants and low interest rate loans. Offered tax exemptions and subsidized utilities. Turkish government invested heavily in tourism infrastructure. The government opened tourism schools. The government conducted mass media campaigns to promote public awareness of the importance of tourism. Case Study: How Did Turkey Achieve Its Rapid Tourism Development


Slide166: Focused on diversifying the tourism product with projects based on golf, faith tourism, adventure tourism, and health and well-being. Government funded a large marketing budget focusing on Germany, the United Kingdom and France. Today tourism constitutes 30% of the country’s export income. Case Study: How Did Turkey Achieve Its Rapid Tourism Development (cont.)


Slide167: Airline companies are supported through incentives for each tourist brought in – reduced petrol prices, bounties for each tourist, reduced fees, etc. Tourism companies are considered export companies and receive incentives given them later. Reduction of VAT for tourism enterprise. Governmental credits increased for SME’s and travel agencies given SME status. Streamlined governmental approval process to 10 months or less for tourism projects. Case Study: Tourism Development Support Programs Utilized in Other Countries


Slide168: No-interest loans, free land and other incentives to create new tourism product niches. Investment subsidies that target higher-income tourist groups, such as conference and corporate tourism. National and regional trademarks, identity campaigns, and promotional campaigns to position product against competitors. Case Study: Tourism Development Support Programs Utilized in Other Countries (cont.)


Slide169: Destinations have become more important than individual attractions as a result of packaged holiday experiences. There is a close relationship between a destination’s overall performance level (ability to attract tourists) and the individual components that comprise tourist experiences of a destination. Eilat could benefit from benchmarking its total offering with direct competitors operating in the Mediterranean region. Turkey’s Mugla and Antalya provinces Cypress Greece’s islands Italy’s art cities Spain’s Costa del Sol Reasons To Benchmark Eilat


Slide170: Enhance domestic tourism revenues by focusing on: More fully developing Eilat to make it competitive in terms of attractions and shopping with regional destinations. More fully developing rural tourism infrastructure. Increase the per cap inbound visitor revenue stream by rebalancing the inbound tourism mix towards more value-add visitors – business/professionals; high-value niche markets; and FIT’s. Increase per cap spend of domestic tourism by enhancing shopping and attractions at primary visitor destinations. Key Strategic Measures


Slide171: Focus on branding efforts and clear positioning campaigns with target markets, not on general promotional campaigns (which have been demonstrated to be far less effective at inducing tourism). Positioning campaigns should be based on what a visitor can do and how they will personally gain from the trip. The goal of positioning is to create in a potential visitor’s mind: Demonstration of interest/pleasure Reduction of uncertainty about choosing Israel Reduction of risk about choosing an unsuitable vacation Key Strategic Measures (cont.)


Slide172: Repeat visitations will shift from the majority of visitors to Israel to only 25% at the 4.0 million level. This will put significant pressure on bench-marking marketing channels to determine the most efficient channels to ensure a constant flow of new visitors. In Europe, 40% of travelers already consult the internet before booking and fully 27% buy their trip online. Booking is already over 50% in the U.S. Over the next five years this channel will become central in order to achieve 4.0 million tourists. Key Strategic Measures (cont.)


Slide173: Israel is not a mass market leisure destination. In order to achieve an inbound tourist level of 3.0 – 4.0 million tourists, Israel will need to pursue targeted market segments. A preliminary visitor allocation is provided: (25%) Jews visiting friends and family and solidarity visits (10%) Christian Pilgrims (10%) Regional discount/ charter leisure package tourists for regional holidays (Eilat-based) (10%) Primary niche market travelers – direct marketing (15%) Business/ Conference/ Professional (20%) FIT’s (10%) Other Market Segmentation and Budget Allocation


Slide174: A preliminary marketing budget allocation would be as follows 30% - Domestic tourism to ensure a growing base to provide a financial underpinning for the industry 30% - Tour programs, low-cost airlines, incentive travel, business/ professional, etc. 30% - Direct marketing, value-added niche markets 10% - Branding and positioning campaigns Using a standard of $6.00 per tourist with a looking forward model, a 4.0 million target should be accomplished with an efficiently used annual marketing budget of $25.0 million. Market Segmentation and Budget Allocation (cont.)


Slide175: Israel would then need a five-year budget of $150.00 million. Year 1 $35.0 million Year 2 $32.0 million Year 3 $30.0 million Year 4 $28.0 million Year 5 $25.0 million By bench-marking, Israel can track budget against performance and adjust the budget in year 3 on to reflect the current visitor and expenditure levels. Market Segmentation and Budget Allocation (cont.)


Slide176: Research Group


Slide177: International Leisure and Recreation Consultants Conducted over 2,000 studies in 59 countries Area specialties include tourism development, hospitality industry, entertainment and lifestyle retail Consultancy services include economic feasibility, facility planning, facility sizing, consumer demand analysis, visitor expenditure studies, and market strategies. MCM Group International Consultancy


Slide178: MCM has worked in Israel for the past five years assessing tourism projects. MCM has inspected tourism facilities throughout Israel, Jordan and Egypt in addition to extensive experience in Turkey, Greece and the Middle East. Conducted interviews in Israel with tourism stakeholders throughout the sector. Research materials included focus groups in four key markets – United States, Canada, United Kingdom and France. Research Methodology