Aquaria.mcm.Israel Tourism Analysis

8/3/2019 Aquaria.mcm.Israel Tourism Analysis

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MCM GROUP INTERNATIONAL

ISRAEL TOURISM ANALYSIS

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Prepared byMCM Group International

December 2006


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Executive Summary 3

Study Objectives 16

Current Situation 21

Tourism Economics / Sizing 33Market Demand 67

Travel Trends and the Reasons People Travel 85

Domestic Tourism 100

Marketing 107

Strategic Plan 142Research Group 176

Presentation Contents


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Executive Summary


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This study is researched and evaluated from aneconomic perspective, detailing strategies to increaserevenues; determine where best to invest; and toexamine what capital improvements will yield the highest

returns. Israels tourism economy is comprised of a system of

inbound visitor revenues and outbound domesticexpenditures.

The study focuses on `net tourism revenues the

difference between the total tourism spend in countryand that spent by Israelis on outbound travel.

Study Objective


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From a `net revenue perspective, clearly the first priority isaddressing domestic tourism expenditures. This is true forseveral reasons:

Domestic in-country tourism expenditures currently

represent 65% of hotel person-nights. In projectedmodels at three million tourists, they will still representthe majority of person-nights.

Israel has undergone periodic market volatility andmay continue to do so. It is economically imperative

to secure a growing domestic tourism base todampen the economic impacts of future tourismvolatility.

Study Objective (cont.)


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Addressing domestic tourism expenditures:

Israel has done little to address the long-term needsof domestic tourism. While inbound tourism hasdoubled 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 decadefrom a net tourism importer of funds to a net exporter a net loss of $1.1 billion USD in 2005 alone.



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Addressing domestic tourism expenditures:

In addressing domestic tourism, the key to Israelslong-term success at building a truly compellinginternal marketing destination is to fully develop Eilat.

And the key to increasing domestic tourismexpenditures is to greatly enhance the infrastructureand attraction base in Eilat.

Thus, from an economic point of view, Israels firsttourism priority is to develop Eilat as a long-term

compelling domestic destination capable of retaininga larger share of the domestic tourism spend.





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Addressing the inbound tourism issue, the studys visitoranalysis set out to determine what is required of Israels

tourism sector to attract and service 3.0 to 4.0 millioninternational tourists. The study addressed infrastructurecapacity development and investment strategy.





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Finally, in terms of overall tourism development strategy, thestudy set out to answer a set of priority strategic questions:

1) What are the primary issues confronting Israel as itsets out to expand its tourism economy?

2) What is the best strategy to increase overall tourismrevenues?

3) What are the principal issues relating to thecompetitiveness of Israels tourism products, pricingand sizing?

4) Where should the tourism industry focus itsinvestment and growth strategies?

5) How should Israels tourism products be positionedand marketed?





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Our research and analysis clearly demonstrates that Israelcan significantly expand the economic role that tourism playsin 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 tourismdevelopment initiatives.

Promote/ incentivize domestic tourism

Significantly increase attractions, entertainment andshopping at Tel Aviv and Eilat

Increase the number of hotel rooms by 8,750 with4,000 of them required in Eilat

Enhance the accommodation infrastructure in ruraldestinations to increase domestic tourism (95% ofrural tourism throughout the world is domestic)

Study Findings




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Because of Israels size, level of economic development,tourism infrastructure base, and geographical location in theEastern Mediterranean, Israel is not a low-cost, tour driven,mass market leisure destination.

Israel should target the upper one-third of the traveling publicand not the mass market middle third. Israel needs to do thisboth because it cannot compete directly against mass markettour destinations in the eastern Mediterranean in pricing ormass market leisure appeal; nor are its target marketsegments mass market.

Study Findings (cont.)




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Israels 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 WestJerusalem, the community is not conducive for creating

significantly expanded revenue producing programs/ facilitiesfor tourism. Infrastructure focus should be in Eilat and TelAviv.

Study Findings (cont.)




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Allowing low cost carriers to land at Ben-Gurion airport willhave a significant negative impact on Israels balance oftourism trade.

Using Eilat as a port of entry for low-cost airlines will most

likely have a neutral net economic impact but increaseinbound tourism, particularly for regional tours.

Israel needs to create a product positioning that appeals toeach 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 seekingSun, Fun and Nightlife

Summary Of Development Strategies


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Focus first on supporting and growing domestic tourism.

Develop a segmented marketing strategy not mass-marketdirected.

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 toenhance per cap expenditures.

Summary Of Development Strategies


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Do not undertake a low-cost carrier offering at the BenGurion airport. Pursue Eilat as the port of entry for LCCs.

Develop diversified distribution channels to allow specific

target market segmentation.

Provide a $150.0 million tourism marketing budget over 5years, starting the first year with a $35.0 million expenditure.

Summary Of Development Strategies (cont.)


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Study Objectives


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The Studys Principal Goal

To determine what tourism strategies will yield

Israel the highest return on investment overthe next decade.


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To determine what is required of Israels tourism sector toattract and service 3.0 to 4.0 million international tourists:

Infrastructure

Market strategy Development focus

Investment strategy

Studys Visitor Analysis


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Israels tourism economy is comprised of a system ofinbound visitor revenues and outbound domesticexpenditures.

This study addresses the strategies that will yield the

highest net tourism revenues on the minimum tourisminvestment.

The study is researched and evaluated from aneconomic perspective, detailing strategies to increaserevenues; determine where best to invest; and examine

what specific capital improvements will yield the highestreturns.

Studys Economic Analysis


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The study set out to answer several key questions:

What are the key issues confronting Israel as it setsout to expand its tourism economy.

What is the best strategy to increase overalltourism revenues.

What are the principal issues relating to thecompetitiveness of Israels tourism products, pricing,and sizing.

Where should the tourism industry focus itsinvestment and growth strategies?

How should Israels tourism products be positionedand marketed?

Study Approach


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Current Situation


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Over the last decade, Israels Tourism balance of tradehas gone from a positive $463.5 million (1992) to anegative $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 aretaking an increasingly larger share of Israels Europeantarget markets.

In short, the current national tourism development

strategies are leading to a long-term erosion of theindustry. A thorough rethinking needs to be undertakento ensure sustained economic growth in this vitalnational sector.

Israels Tourism Industry has three major interrelated problems


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Because of Israels highly educated population it wasable to promote effective national economic growththrough high technology manufacturing and knowledge-based enterprises.

During this same period many of its Mediterraneancompetitors did not possess these educationaladvantages and sought to develop their tourism industryas an alternative strategy for increasing their GDP.

Like Israel, many of these countries faced internal

conflicts and political instability but despite that achievedsignificant tourism growth because it was targeted as anational priority.

Current Situation 1990-2005


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There has been a dramatic decrease in Israels balance oftourism trade over the last decade. Between 1999-2005, thedeficit 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 1999with the United States to a negative balance of 626,500.

Germany increased its negative balance to 191,500 touristsover the past 6 years.

Bilateral Tourism 1999-2005


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Israel went from a positive balance with the United Kingdomof 24,300 in 1999 to a negative balance of 56,100 in 2005.

Israel went from a positive balance of 8,500 with theNetherlands to a negative balance of 69,600.

In 2005 Israel had 3.77 million domestic departures and 1.91million inbound arrivals.

Bilateral Tourism 1999-2005 (cont.)


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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 millionduring 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 inboundtourism over the period.

Long-term Tourism Trends in Israel 1977-2005


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Because of the past periodic volatility of international tourism, Israelneeds to ensure the financial viability of its tourism industry byprioritizing 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 domestictourism 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 domestictourists. At 4.0 million international tourists, we project that 46% ofperson nights will still be accounted for by domestic tourism.

Stabilizing the Sectors Financial Underpinning


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Rising standards of living and decreasing air fares havedoubled the size of global tourism on the demand size.

On the supply side, the number of hotel rooms have morethan doubled; globalization is standardizing values and

quality; and specialization and market segmentation aredriving new patterns of tourism.

Tourists are becoming increasingly demanding and moreexperienced.

Sun and Sea destinations are being commoditized and face

increasing downward price pressures. Contemporary touristsdemand more experience than traditional sun and seaofferings usually provide.

Major Changes in Global Tourism Market since 1990


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High value customers are increasingly more difficult toattract and retain as competitive markets increasinglyexpand.

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.)


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Israel is surrounded by Mass Market Mediterraneandestinations which will exert long-term price pressures on theIsraeli tourism products.

Because of the size of these competitive markets (Egypt,

Turkey, Greece, Tunisia, Morocco), and Israels level ofeconomic development, Israel will not be able to effectivelyprice against the offerings of international Mass Market touroperators 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


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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 goodsand services in 2005

Expenditures Income Positive or of Israelis from Negative Balance

Traveling Abroad Tourists of Trade


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Per Capita receipts from incoming tourists fell from $1,563 in1999 to just $865 in 2005.

The tourism demographic changed during the same periodwith more arrivals staying with friends and relatives with

fewer in higher-priced hotels.

Per Capita Expenditures Israel Inbound Tourism


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Tourism Economics / Sizing


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The goal of this analysis is to determine the economicrequirements and consequences on the tourism sector ofachieving the 3.0 million and 4.0 million level of internationaltourists.

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 mostsignificantly effect balance of tourism trade.

How should national macro-economic forces thatsignificantly influence tourism patterns be addressed?

Tourism Economics and Sizing


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The issues surrounding those levels include:

How best to encourage/incentivize domestic tourismgrowth.

What key markets can most likely become feeders forinbound tourism growth.

How many new hotel rooms are required and whereshould they be located to appropriately service 3.0-4.0million inbound tourists.

What is the most financially reasonable size of thenational tourism marketing budget?

Tourism Economics and Sizing (cont.)


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Macro-Tourism Economics

From a national macro-economic perspective, tourismpolicies should be designed to create a net positivebalance 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 toincrease both domestic as well as international tourismrevenues.


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From the perspective of national balance of tradepayments from 1999 to 2005, Israel has lost significantground.

The four countries that account for nearly all of that loss

are the United States (57%), Germany (17%), UnitedKingdom (7.1%) and the Netherlands (6.9%), for a totalof 88.0% of the tourism trade balance loss.

Only two countries had an Israeli-improved balance oftourism trade over this period France and Turkey.

Balance Of Tourism Trade


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Tourism Economics Balance of Tourism Trade

The national balance of payments accounts can besignificantly impacted by tourism expenditures.

The tourism sector in Israel has moved from a netrevenue 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 -

Expendituresof Israelis Income from Balance

Travel Abroad Tourists to Israel of Year (mil $) (mil $) Trade


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Bilateral Tourism 2005

(000s)

1 U.S.A. 513.3 1,139.8 626.5 1

2 France 333.7 373.6 39.9 103 United Kingdom 166.6 222.7 56.1 84 Germany 108.4 373.6 265.2 25 Italy 69.5 164.3 94.8 46 Russia 66.4 94.6 28.2 128 Netherlands 49.8 119.4 69.6 59 Spain 44.7 105.1 60.4 7

10 Belgium 27.7 34.0 6.3 1311 Switzerland 27.4 77.4 50.0 915 Turkey 15.7 237.8 222.1 316 Greece 15.0 77.5 62.5 617 Cyprus 7.6 43.3 35.7 11

Tourist TouristArrival Tourist Tourist Neg. Trade Balance

Ranking Country Arrivals Departures Balance Rank


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Demand Analysis

Israel Visitor Arrival Countries of OriginComparing 2000 to 2005(000s)

Total: Represents 87% of total visitor loss from 2000 to 2005

1 Italy 101.92 Germany 67.63 Netherlands 38.24 United Kingdom 34.65 Spain 20.96 Sweden 19.3

7 Finland 17.58 Belgium 12.29 Denmark 11.310 Austria 8.5

Rank Country Visitor Loss


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Bilateral Tourism

Change 1999 - 2005(000s)

1 U.S.A. 626.5 - 15.6 + 642.1 - 12 Germany 265.2 - 73.7 - 191.5 - 23 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 - 58 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 2005Trade Trade

Country Balance Balance Change Rank



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Israel Tourism Balance of Trade

1999(000s)

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 TradeCountry Arrivals Departures Balance



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Reaching 3.0 Million Inbound Tourists

The tourism market to Israel is relatively narrow from anational perspective. Just three countries provide 50%of the visitors with ten providing 75%.

From a perspective of growth opportunities, six countriesprovide 70% of the most likely growth market.

But to achieve a million additional tourists, it will requiresome type of targeted marketing in twenty nations.



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Key Markets for Expanding Israels Inbound Tourism By Growth Potential2005

(000s)

1 U.S.A. 513.0 700.0 187.02 Italy 70.0 205.0 135.03 Germany 108.0 210.0 92.0

4 Nordic Countries 47.0 121.0 74.05 United Kingdom 167.0 240.0 73.06 Jordan 23.0 94.0 71.07 France 337.0 405.0 68.08 Netherlands 50.0 109.0 59.09 Spain 45.0 79.0 34.010 Mexico 24.0 46.0 26.0

11 Russia 66.0 90.0 24.012 Belgium 28.0 48.0 20.013 Ukraine 28.0 46.0 18.014 Turkey 16.0 29.0 13.015 Canada 56.0 67.0 11.016 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



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Tourism Balance of Trade

2.0 to 3.0 Million Inbound Tourists

2005 1,916 7,963.5 3,774.2 12,700.0 -4,736.52010 (est.) 3,000 14,454.9 4,240.0 16,535.1 -2,080.2

Domestic

Arrivals Expenditures Departures ExpendituresYear (000s) (NIS mil.) (000s) (NIS mil.) Deficit



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Tourism Spending in Israel - By Inbound and Domestic Travelers

Total tourism spending has remained flat, comparing 2000 to2005, with 33.3 billion NIS spent in 2000 and 33.0 billion in2005.

Comparing tourism spending patterns over this period, we

see a significant shift in sector spending:

Shopping is increasingly becoming a key travel experiencenot only within Israel, but as a component of all majordestinations.

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



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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 roomswill be required.

Because of the structure of the market, Eilat will continue to

be the key city in the tourism sector, needing to add 4,000hotel rooms and increase its total market share to 27.6% ofall rooms (14,563) at the 4.0 million level.



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Hotel Room Growth Analysis

At Various Levels of Inbound Tourism (cont.)

West Jerusalem will need to add 1,500 rooms at the 4.0million level, bringing its total to 8,669, representing 16.4% ofthe 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 mostregions, only Eilat and the Dead Sea will need to expandroom inventory.



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Hotel Room Growth Analysis By Person-Night(000s)

Current2.0 Million 3.0 Million 4.0 Million

Israeli Tourists 12,303.9 12,500.0 12,500.0International 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 ShareDomestic 5,548.1 5,600.0 5,700.0International

% 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 2.1Rooms 10,563 12,000 14,563Occupancy Rate 65.9% 75.7% 82.6%



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Hotel Room Growth Analysis By Person-Night(000s)(cont.)

Current2.0 Million 3.0 Million 4.0 Million

Israeli Tourists 12,303.9 12,500.0 12,500.0International 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 JerusalemDomestic 772.1 800.0 850.0International

% 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 2.1Rooms 7,169 7,169 8,669Occupancy Rate 52.8% 75.4% 85.0%



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Current Growth from2.0 Million 3.0 Million 4.0 Million 2.0 MillionTel Aviv

Domestic 550.8 600.0 650.0International

% 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 4,170.0Percent of Total Tourism Market 11.3% 13.4% 14.6%Room Requirements:

Occupants per Room 1.6 1.7 1.8Rooms 5,850 6,350 7,600 1,750Occupancy Rate 65.4% 80.8% 83.5%

Tiberias AreaDomestic 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 2,320.0Percent of Total Tourism Market 7.3% 7.3% 8.1%Room Requirements:




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Hotel Room Growth Analysis By Person-Night(000s)(cont.)

Current Growth from

2.0 Million 3.0 Million 4.0 Million 2.0 MillionHaifa/ Akko/ Nahariyya

Domestic 506.7 550.0 600.0International

% 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 1,820.0Percent of Total Tourism Market 4.0% 4.9% 6.4%

Room Requirements:Occupants per Room 2.2 2.2 2.1Rooms 2,376 2,376 2,876 500Occupancy Rate 40.0% 61.2% 82.6%



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Dead SeaDomestic 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 2,780.0Percent of Total Tourism Market 10.5% 9.9% 9.8%Room Requirements:

Occupants per Room 2.0 2.0 2.0Rooms 3,915 4,415 4,915 1,000Occupancy Rate 70.5% 73.3% 77.5%

Other AreasDomestic 2,167.2 2,200.0 2,300.0International

% 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 15Percent of Total Tourism Market 20.0% 20.1% 20.4%Room Requirements:


Domestic Visitors 12,303.9 12,650.0International 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



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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

Current2.0 Million 3.0 Million 4.0 Million Growth



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Focus on Domestic Tourism

The first task in assessing tourism policy is to address theissues relating to domestic tourism. Domestic tourismprovides the bulk of visits and revenues in most majorcountries in the world.

Currently domestic tourism provides nearly 65% of hotelperson-nights in Israel and is key to long-term stability of thetourism sector.

In most large nations like the United States, China and India,

it provides 95% or more of tourism visits. In the worldslargest tourism destination, France, only 22.7% of tourismvisits are international.



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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



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Israels economic reform package has created a vibranteconomy with long-term positive growth potential.

The Shekel has performed favorably against the Euro overthe last decade.

Other competitive destination currencies have not fared aswell, such as Turkey, Cyprus and Eastern Europe.

The result has been the transformation of Israel from arelatively inexpensive destination in comparison to itscompetitors a decade ago to a relatively expensive

destination today.

Macro-Economics and Marketing Strategy



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The mid-term outlook for these regional economies will allowthem to continue to exert price-pressures on competitivetourism 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-termobjectives nor economy of Israel.

Because of the competitive pricing structure and limitedcapacity of Israels tourism infrastructure (and particularly thefragile ecosystems of the Galilee and Red Sea), Israel willmost likely need to move to higher value sectors of themarket.

Macro-Economics and Marketing Strategy (cont.)



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The Israeli tourism industry has not upgraded itsaccommodation infrastructure or continually invested inattractions to drive domestic tourism growth.

Regional competitor countries like Turkey, Greece, Cyprus

and Croatia have invested heavily in modernizing theirtourism offering. Over the last five years, Croatia (at 4.5 milpopulation) for example, has invested over 600 million Euroin tourism infrastructure.

Packaged holiday travel throughout the EasternMediterranean is now at parity or even less expensive than adomestic Israel holiday.

The result has been a growth rate in domestic person nightsof only a little over 2.0%. Domestic tourism revenues haveremained flat.

Domestic Tourism Issues



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Tourism travel is price sensitive. It has been demonstratedthat increased inflation rates and changes in prices causedby 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 Bhatcollapsed in 1997, for example, Australian outbound flowsincreased 52.8% and Indonesian arrivals to Australia fell by28.4% in the same period.

Price changes causes the substitution of one destination foranother. When the Won fell in Korea in 1998, for example,its tourism jumped 10.0% that year.

Macro-Economic Influences



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MCM GROUP INTERNATIONAL 61

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

1994-2003Exchange Rate Versus Dollar



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Israel has 2.5 million employed (2005) with 3.0% directly orindirectly employed as a result of tourism (76,667).

With a 3.3% annual increase in the labor force, at 3.0 millioninbound tourists, approximately 115,000 people will be

directly or indirectly employed as a result of tourism, raisingthe tourism sector to 4.0% of the National Labor force.

At 4.0 million inbound tourists, 153,333 will be employed as adirect or indirect result tourism. This will represent nearly5.0% of the work force.

Job Generation



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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 JobsDirect 1 to 40 50,000 75,000 100,000

Indirect 1 to 75 26,667 40,000 53,333Total 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 4.0million million million

visitors* visitors visitors



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The short answer is it should be large enough to efficientlyachieve its marketing objectives.

The inbound side of those objectives are to first reach 3.0million (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, countrys spend an average of $2 to $4 per arrival.Countrys like Italy are highly efficient at $.89/ arrival, France$1.26, Turkey $1.97, Jordan $4.44, and Croatia $3.53 are inthe mid-range.

How Large Should Israels National Marketing Budget Be?



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Several countries have relatively underperforming strategiessuch 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 milliontourists, it would require a budget of $68.0 million. Bydeveloping a more targeted and efficient marketing strategythe cost per arrival should drop to the $6.00 level.

Over the five years of the new program, marketing costs pervisitor should be planned to be reduced from $15.00 year 1($35.0 million budget) to $6.00 by year 5 ($25.0 millionbudget).

As various countries account for direct tourism marketingbudgets in different manner, the following is an estimate oftourism marketing budgets for various countries.

How Large Should Israels National Marketing Budget Be? (cont.)



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Spain $ 136.0 55.6 $ 47.9 $ 2.45

France $ 955.5 30.0 $ 30.7 $ 1.60Britain $ 48.1 30.0 $ 30.7 $ 1.60Italy $ 32.5 36.5 $ 35.4 $ 0.89Egypt $ 48.0 8.2 $ 6.9 $ 5.85

Turkey * $ 40.0 20.3 $ 18.2 $ 1.97Israel $ 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 $ 3.33Croatia $ 30.0 8.5 $ 7.5 $ 3.53Lebanon (2004) $ 9.6 1.3 $ 5.4 $ 6.61Ireland $ 46.0 7.3 $ 4.7 $ 6.30

National Tourism Marketing Budgets 2005

Tourism Tourist Tourism Budget ExpenditureCountry Budget Arrivals Expenditure (bil) Per Tourist

* estimate



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Market Demand



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Turkey is the major competitor to Israel. Half ofTurkeys visitors originate in three of Israels targetmarkets Germany, United Kingdom, Russia.

Turkey is forecast to become the overwhelmingdestination of choice in the twelve nation Adriaticand Eastern Mediterranean region by 2020,capturing one-third of all visitors to the region with27.0 million tourists.

The other key regional competitor is Egypt as it

draws nearly half of its arrivals from five of Israelstarget markets: 1) Germany; 2) France; 3) Italy; 4)United Kingdom; 5) Russia

Competitive Analysis Who are Israels Primary Destination

Competitors?



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These five markets are critical to Israels success asthey represent five of the top ten highest tourismspenders with 30.0% of the worlds totalexpenditures. Germany is 1st; United Kingdom 3rd;

France 5th; Italy 6th; and Russia 9th.

Thus a key issue is the long-term productpositioning against Turkey and Egypt.

Competitive Analysis Who are Israels Primary DestinationCompetitors? (cont.)



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In the Mediterranean, the leading tourism growthcountries 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 beJordan (6.9%), Bahrain (6.9%); Dubai (6.6%), and SaudiArabia (5.3%).

Israel is forecast by the WTO to make the top tenMediterranean destinations with 3.0 million visitors by2010, or 1.1% of the regional market.

Leading Regional Tourism Destinations Growth Forecasts 2010-2020



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The Fastest growing Mediterranean tourists destinationare primarily low-cost, high-experience destinations:

Turkey Egypt Tunisia Morocco Croatia

The slowest growing are relatively high-costdestinations:

Spain

Italy France Greece

Leading Regional Tourism Destinations Growth Forecasts 2010-2020(cont.)



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Leading Mediterranean Tourists Destinations2010

1. France 88,237 32.8 2.1%

2. Spain 61,798 27.5 2.2%

3. Italy 43,881 16.3 2.0%

4. Turkey 16,068 6.4 5.3%

5. Greece 14,315 5.3 2.0%

6. Egypt 8.693 3.2 7.4%

7. Croatia 7,454 2.8 4.3%

8. Tunisia 6,305 2.3 3.4%9. Morocco 5,465 2.0 4.9%

10. Israel 3,055 1.1 2.5%

Total 99.7%

Total Market 2010-2020Rank Country (000s) % Growth Rates


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Middle East Tourism Countries of Origin2010 Forecast

Middle East Countries 39.0%

Europe 30.7%

South Asia 8.5%

East Asia 7.0%Americas 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 longhaul.



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Examining visitor arrival patterns clearly shows a highlysegmented market in the Middle East, most likely reflectingbi-lateral political traditions that are reflected in internationaltour companies.

Where France and Germany play dominant roles in Egyptiantourism, 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 nearlyequal annual visitations to Israel, Bahrain and Dubai, butalmost no presence in Lebanon which has been a traditionalFrench alliance.

Market Segmentation



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Tour Growth Forecasts of Competitive Markets 2010

1. U.S. 158,416 388,948 56,768 69,123 700,00

2. France 1,012,347 135,402 405,060

3. United Kingdom 112,926 667,581 172,426 205,134 240,000

4. Germany 1,161,630 57,414 210,000

5. Italy 935,933 205,0006. Russia 193,274 388,462 90,000

7. 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



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One primary analytical tool to determine the most efficientsources of tourism development is to evaluate penetration rates.

Penetration rates illustrate the percentage of people from a givencountry 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 orunfavorable bilateral tourism programs.

Six countries have relatively high penetration rates for visiting

Israel in 2005. France is the highest, followed by theNetherlands, Switzerland, the United Kingdom and Sweden.

These same six countries also have high outbound penetrationrates with Belgium (number 1), the Netherlands (number 3), theUnited Kingdom (number 7), and France (number 9).

Market Penetration



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The ratio between inbound and outboundpenetration rates produces a factor which allowsone to compare the percentage of people that visitIsrael from a country to the percentage of peoplefrom Israel that visit that same country. Belgium is

the only country that had a higher proportion of itscitizens 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.)


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Tour Growth Forecasts of Competitive Markets2010

1. Cyprus .7 .0138 .0327 4 2.4

2. Netherlands 15.7 .0058 .0125 3 2.23. France 57.7 .0042 .0368 9 8.8

4. Belgium 9.9 .0040 .0037 1 0.9

5. United Kingdom 57.6 .0035 .0268 7 7.7

6. Italy 55.2 .0031 .0159 6 5.1

7. United States 281.1 .0017 .0717 13 42.2

8. Canada 31.4 .001 .0053 5 3.1

9. Spain 38.3 .0017 .0132 8 7.8

10. Poland 29.0 .0014 .0025 2 1.8

11. Greece 10.2 .0010 .0165 10 16.5

12. Germany 82.4 .0009 .0227 11 25.2

13. Russia 135.6 .0004 .0120 12 30.1

14. 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



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Visitor Market Penetration 2005(000s people)

1. United States 513.3 0.17% 7

2. France 333.7 0.57% 1

3. United Kingdom 166.6 0.28% 44. Germany 108.4 0.13% 9

5. Italy 69.5 0.12% 10

6. Russia 66.4 0.05% 13

7. Canada 55.9 0.17% 8

8. Netherlands 53.1 0.33% 2

9. Spain 44.7 0.10% 11

10. Belgium 27.7 0.27% 5

11. Switzerland 27.4 0.30% 3

12. Australia 21.1 0.10% 12

13. Brazil 19.1 0.01% 15

14. South Africa 18.1 0.04% 14

15. Sweden 17.7 0.20% 6

Visitors Percentage RankRank to of Market by

Magnitude Country Israel Penetration Penetration



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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 citiescaptured 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 StayIsrael Hotel Person-Nights



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Where Do International Visitors Stay in IsraelPerson 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



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Leading Tourist Destinations of Israel2005

1 Tower of David 492.0 5.5%

2 The Israel Museum 456.1 5.1%

3 Massada 418.8 4.7%

4 Caesarea 358.5 4.0%

5 Gan Hashlosha National Park 332.0 3.7%

Visitors MarketRank Destination (000s) Penetration



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Travel Trends and the Reasons People Travel



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A significant reduction in `sun and beach holidays in Europedue to increasing variety of places to get this experience fromcheaper locations. `Sun and beach holidays are becomingglobally commoditized.

European tourism is changing from one long holiday toseveral short breaks lasting three to seven days.

New tourism is increasingly sophisticated, seeking fullerexperiences giving rise to rural cultural tourism and nichetourism replacing packages holidays.

Forty percent of European travelers consulted the internetbefore booking. Fully 27% bought their trip online.

Increased competition is causing price pressures onEuropean hotels and an overall lower expenditure per tourist.

European Tourist Trends



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The over 30 years of age group accounts for 80% of globaltourism.

Older age groups will continue to increase in size in both theshort and medium terms.

As income increases worldwide so does time pressure. Halfof travelers seek to simplify their lives by buying all-inclusiveprograms.

The ageing population has an increasing concern for healthand will drive growth in health tourism products.

Increasing security, health and immigration concerns will leadto increasing government controls on travel.

Tourist Trends



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The image of destination countries will increasingly be linkedto security and health issues, although travel downturns willbecome 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 tobuild repeat visitor loyalty.

The internet will become the prime source for seeking adviceon destination selection, particularly from travel blogs.

Tourist Trends (cont.)



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Promotional campaigns will become less important whilebranding 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, nationswill make residency requirements for state pension

entitlement, thus slowing the long-term trend in out-of-country homes for European pensioners.

Tourist Trends (cont.)



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The primary reason people travel is for leisure andrecreation, representing nearly 50% of all international visits.

The majority of the remaining travelers are doing so to visitfamily and friends (19%) or business travel (15%).

Israelis primarily travel for leisure and recreation, accountingfor over three-fourths of their international trips, much higherthan the norm.

Visitors to Israel, on the other hand, come for very differentreasons. 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% in2004 and 34% in 2005.

Reasons People Travel



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The reason for these significant changes is most likely theresult of two trends brought about by the Intafada. The firstis an increase of Jews visiting relatives and the second is adecrease in Christian leisure tourists.

Examining the religious affiliation of inbound visitors supportsthese findings. First, most of the visitors from leading sourcecountries are Jewish from as high as 90% from France to68% from the United States. Secondly nearly half ofChristians purpose to visit is a pilgrimage.

Overall, Jews account for 53% of visitors while Christians

contribute 23%.

Reasons People Travel (cont.)



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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 CountryCanada 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



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Travel inhibitors (negatives) are the more dominant criteria inthe selection of a destination than positive benefits. Thebalance between the two build the primary image of adestination. Destinations that offer the most benefits with theleast inhibitors are most often selected.

Past travel experience to a particular destination increasesthe intention to travel there again, except for the high novelty seeking traveler.

The factors that most influence return visits are good valuefood, high-value shopping and a variety of things to do.

The factors that most negatively influence a return visit aretravel barriers ( difficulties ) and social and environmentalproblems.

Destination Selection and Repeat Visitation



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Travel motivations, destination image, and travel barriers arethe most important factors that influence travelers to revisitdestinations. The more favorable the image of a destination,the more likely a repeat visit.

Despite belief to the contrary, studies have demonstratedthat traveler satisfaction does not have an impact on thelikelihood of repeat visits.

In Israel, the majority of tourists are repeat visitors. Certaincountries 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.)



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In the mid-nineties, repeat visits to Israel were under 40.0%and the majority of visitors were Christians. But over theensuing decade, the number of separate individuals visitingIsrael has dropped significantly along with an increase ofrepeat visits by the international Jewish population.

Destination Selection and Repeat Visitation (cont.)



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Studies of European Tourism indicate that pricecompetitiveness is a central variable driving change inmarket share this last decade.

Price competitiveness is comprised of:

1) Relative Pricing ( nominal rates )

2) Exchange Rates

3) Airfares

4) Expenditure Budgets

Destination Selection and Repeat Visitation



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International tourism studies demonstrate that increaseddestination attractions and activities reduce seasonality.

Seasonality



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Israel is generally viewed by Europeans as a potentiallyunsafe destination.

The majority of Europeans oppose Israeli actions in the WestBank and Gaza Strip thus impacting the image of Israel as adesirable holiday destination.

In its attempt to position itself as a compelling EasternMediterranean destination, Israel faces strong competitionfrom Greece, Turkey and Cypress. They are all closer toEurope and offer more developed tourist attractions andcompetitive pricing.

Negative Tourism Growth Factors



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High security constraints are viewed as uncomfortable forincoming tourists.

Domestic tourism is not likely to undergo much expansion.Although 44% of Israeli Jews expect to take at least twoholidays a year, over half take their second vacation abroad.

Unlike many other countries, Israel has not permitted lowcost carriers to operate. Air fares to and from Israel arerelatively expensive compared to other Europeandestinations.

Negative Tourism Growth Factors (cont.)



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Domestic Tourism



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Israelis are increasingly taking shorter holiday trips with theaverage of a week or less growing from 52% in 2000 to 56.5% in2005. Nearly one-third of the trips are 1-3 days.

Shorter trips are due mainly to short trip packages offered byresorts in Eilat, Greece and Turkey.

Trips are highly focused in the summer period, (July-August)representing 26.4%. The holiday season in September andOctober is particularly important accounting for 22.0% of allholidays taken. Very few trips are taken during the winter(December-February) accounting for just 14.0%

Domestic tourists have very different travel preferences frominternational tourists. Cities are magnets for international touristswhile domestic tourists generally use holiday travel to leave cityenvironments for more rural settings.

Israeli Travel Habits Holiday Length of Trip and Seasonality



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Eilat continues to grow as the mainstay of domestic tourismaccounting for 42.5% of all domestic person-nights in hotels in2005.

The Dead Sea and Tiberias are second and third with eachgarnering near 13% of domestic trips.

Jerusalems popularity as a trip destination has declined from7.0% of trips in 2000 to just 5.9% in 2005.

The decline in Jerusalem domestic tourism is expected tocontinue as a result of two factors that will not change in the

foreseeable future. The first is that the population is becomingmore Orthodox, which keeps many attractions closed onSaturdays, and the large number of Palestinians in the capital.

Role of Eilat in Domestic Tourism



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Expansion of domestic tourism is limited. Israel has abig difference in disposable income levels with a largeportion of the population unable to afford holiday travel.From 2003 to 2005, the number of domestic tourism tripsgrew only 3.3%.

Because of these and other structural issues, the leisureand recreation expenditures of Israelis have increasedonly 1.5% from 2001 to 2005.

Growth of Domestic Tourism



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Low cost charter airlines and packaged travel in Israelhave made holiday travel to Turkey, Cypress andGreece as affordable as domestic holidays.

The Open Sky Initiative will result in a significantincrease in outbound domestic tourism most likelyreducing current domestic tourism levels.

Growth of Domestic Tourism (cont.)



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IsraeliInternal World TourismTourism Rank Rank

Comparison of Outbound Israel Tourism to Global Patterns

France 1 3Spain 2 7

United States 3 1China 4 -Italy 5 6United Kingdom 6 4Mexico 7 -Germany 8 5Turkey 9 2Austria 10 -Cypress 4

Israeli tourists exhibit thesame travel patterns as themajority of internationaltourists with 70% of theirtop 10 travel destinationsbeing top 10 worlddestinations.



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Israel Tourist Travel ProductsPurchased in 2005

1. Flight Only 33.0%

2. Package Holidays 21.0%

3. City Breaks short package holiday 17.0%

4. Accommodation Only 13.0%

5. Adventure Treks 5.0%

6. Cruise 2.0%

7. Other 9.0%

100.0%



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Marketing



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Tourist motivations have been shown to be multidimensional.Tourists want to have more than one experience at adestination.

Tourists make comparisons between destinations whenselecting a holiday. Research has demonstrated that theirmost important decision is to reduce the probability of makinga bad choice.

The positioning of Israel needs to heighten tourists interestand reduce their anxiety about selecting an unsuitableholiday to increase demand.

How Tourists Select Destinations



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The Five most important factors for a tourist selecting a holidaydestination are in priority order:

Choosing a Destination

1. Accessibility

2. Cost/Value

3. Safety & Security

4. Condition of the destinations facilities

5. Image extent to which the destination is well known anddesired by each target market



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Other factors in selecting a destination in priority order:

Supporting Factors

1. Hospitality The level of friendliness by the destinationsresidents

2. Culture & History Particularly iconic experiences theGreat Barrier Reef, the Eiffel Tower, The Great Wall,Buckingham Palace, etc.

3. Physiography and Climate

4. Mix of Activities

5. Quality of Service



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The factors that are not critical in the destination selection process inpriority 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



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Perceptions of risk are the primary constraints on travel for 34 to 54-year olds. Risk issues in priority order:

Risk Perceptions

1. Holiday may not be personally satisfying

2. I might become ill while on holiday

3. The holiday may not give good value4. I might be put in danger of getting hurt

5. The holiday might not reflect my personality

6. Problems may occur in travel arrangements

7. People might get a negative opinion of me taking such a

holiday8. Problems might arise with the facilities

9. Some aspects of the holiday might be a waste of time



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Positioning a destination market requires addressing travelers keyrisk factors:

Positioning

Health Political Instability

Terrorism Unfamiliar Food Cultural Barriers Religious Dogma Crime

Women perceive a greater degree of risk regarding healthand food.

Experienced travelers downplay the threat of terrorism.



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There are several primary methods to approach the defining of atarget market:

How Different Market Segments Approach Travel Decisions

Geographical Lifestyle

Age Religious/Cultural Income

Over the last two decades, travel marketing has been movingfrom primarily geographical campaigns ( a local travel agent )

segmented by income levels, to more global campaignstargeting certain lifestyles.

The following represent the three most likely lifestyle groups toundertake a long-haul holiday:



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The best potential lifestyle market for travel in general.

Socially Aware

1) Most educated segment of the population.2) Holds professional/ white collar jobs.3) Upper-middle income4) Motivated by social issues5) Seek new experiences

These tourists seek tourism products that offer new experiencesand emphasize learning.

They are discriminating, demanding and very value-for-moneyconscious. They do extensive comparative research.

They are also the most averse to the risks of becoming ill and ofbeing put in danger on a trip

They are the most likely lifestyle group to travel alone (not in atour).



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The second largest travel lifestyle group is characterized by thefollowing traits:

Achievers

1) Well educated2) Defined by their career success

3) Traditional view on family life4) Two-income families5) 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.



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The third largest travel group is characterized by the following traits:

Youthful Enthusiasts

1) Younger couples2) Upwardly mobile, both work3) Unwilling to defer gratification4) Borrow to finance their lifestyle5) 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



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Where to market Israel is certainly as vitally important as howto market it.

For example, France is the second largest source of Israelstourism. The issue with France is how much further can thecurrent 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 manyFrench Christians visit each year. Has France reached itspotential or can the French Christian market be significantlyattracted?

Travel Decisions



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Before any strategy for French marketing can be successful,a full understanding of the specific market constraints needto be clarified. What are the specific negatives in the FrenchChristian community, and can they be overcome? What arethe 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 campaignsneed to carefully address each markets level of opportunityto determine how much budget to allocate.

Travel Decisions



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Terrorism presents a major challenge to the tourism industry,but past evidence suggests that destinations can quicklyrecover from terrorism experiences.

For example, following the October 2002 terrorist attack inBali, 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



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The same consumer responses have been witnessed inseveral markets suffering from terrorism attacks.

The issue is one of perception. When the perception ofterrorism is reduced, consumers remove it as one of theirtravel constraints

The primary obstacle for Israel regarding risk perception isthat the media keeps Israeli confrontations in the public eye,thus keeping safety and security as a travel decisionconcern.

Effects of Terrorism Are Short-lived (cont.)



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What Israel cannot do is to market something it isnt.

Mass tourism is built around easy accessibility, low cost/ highvalue, safety, and iconic identities

Tourists prefer hospitable people and pleasant climates but

theyre 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.

Israels current tourism market represents less than 0.5million people who travel there for leisure/ holiday.

Should Israel Be a Mass Market Destination



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By 2010 Turkey, for example, is forecast to have 11.0 millionleisure tourists. Israel at a 3.0 level will have approximately1.2 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.)



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Mass Market tourism is built around low-cost leisurepackages which Israels price structure will not prove a viablecompetitor

Mass market tourism is built around choices between high-desire destinations. Israel is not perceived among the

worlds top high-desire destinations

Because Israels market base to reach 4.0 million tourists isso large and varied, mass market programs would not beeconomically viable.

Israel Cannot Pursue Mass Market Tourism For Three Reasons:

In order for Israel to achieve its target tourism levels, it will need to appealto targeted niche markets with value-add sensibilities.



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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 competitionto 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 touroperators, the majority of travelers to all three countries aredrawn from just four European countries.

Regional Competitors



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Turkey welcomed 1.5 million British visitors in 2005

Turkey is third in the UKs holiday market after Spain andGreece

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



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It has been demonstrated that inbound flows of tourists varydirectly with the number of travel agents promoting a givenproduct in the generating country.

In many countries, particularly those that have not fullyadapted to internet lifestyles, travel agents exert a strong

influence on destination choices.

The development of niched tourism strategies can threatenthe interests of prevailing tour operators that often control thesupply side of the equation.

Tour Operators



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Israel has three large-sized charter wholesalers as well as anumber of medium-size firms that work with international touroperators and control the majority of leisure holiday visits.

There is no question that packaged tours will play a role inIsraels future growth strategy, however, in order to develop

the large-scale niche market strategy that will be essential toachieving visitation targets, they will play only a moderaterole in the overall strategy.

Tour Operators



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The role of online travel planning will quickly dominate nichetravel marketing. In the United States, online planning hasalready displaced travel agents.

58% of U.S. travelers plan their vacation online compared to23% who use a travel agent.

Online travel bookings in the U.S. reached $60.0 billion in2005 and has been growing 20% annually.

Supplier sites accounted for 58% of airline and hotel bookingsin 2005.

The dominant on-line search strategy is to search for thelowest price.

72% of U.S. travelers plan leisure travel under eight weeksbefore taking a trip.

Online Booking



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Internet purchases for Israeli hotels were only 5.1% in 2005

Most domestic tourists in Israel use the internet only for pricecomparisons.

Inbound tourists are expected to be the main users of online

booking for some time growing to 15-20% of all internationalbookings over the next few years.

Internet Purchases for Israeli Hotels



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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



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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 InterestsGoogle Searches

October 2006

Jewish Christian Flight HotelThemes Themes Packages Packages Eilat



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Israel hotels dominate tourism accommodations, accountingfor 91% of accommodation revenue in 2005

National chain hotels provide the majority of rooms holdingapproximately 70.0% of all visits

The second largest accommodation sector is self-cateredapartments accounting for 4.3% of accommodation sales

The proportion of hotels considered 4 and 5 star representabout 45% of all rooms.

Internet Purchases for Israeli Hotels



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Eilat hotels total 30,700 beds in 2005, 28% of the totalcountry bed-count. The top 5 visitor markets have 75% ofthe countrys 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



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Preconceived images of destinations play a large role intourists 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 asa place of history, tradition and holy places, while FrenchJewish youth view Israel as a place to live and work. One ofthe main reasons for the difference in attitude is that 78% ofFrench Jewish households have family members living inIsrael

The Largest difference in the image of Israel is between Maleand Females. Young men relate most strongly to images ofIsrael such as the Israeli Defense forces and danger, whileyoung women relate most strongly to roots, tradition and holyplaces.

Israel Identity


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The symbols of Israel differ by country of origin. Forexample, Jewish visitors from the U.S. view spirituality asone of the top ten identities of Israel, while the more secularFrench society place it 25th.

Some of this difference is accounted for by ethnic

background. The U.S. has a predominately AshkenaziJewish population (79%), as well as the U.K. while themajority of French Jews (70%) are Sephardic, primarily fromAlgeria and Morocco.

Israel Identity (cont.)



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Symbols Of Israel By Jewish Youth Visitors(Rank Order)

Religion 1 1 2Jerusalem 2 2 1Holy Places 3 3 4Hebrew 4 4 3

Tradition 5 6 9History 6 5 8Spirituality 7 11 25Kibbutz 8 7 10Roots 9 8 6Tel Aviv 10 10 11Masada 11 23 22

Tourism 12 12 23Israeli Army 13 13 5Hope 14 14 7Identity 15 9 18Eilat 24 18 20

U.S. U.K. France



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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 Jewishvisitors and school visits

Scenic areas and national parks are primarily visited by domesticIsraelis

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 afree-trade border center, international level discount center onspecialty items like diamonds or other shopping enhancements.



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1) Jewish solidarity and family travel is a well-established nichemarket that can be expanded

2) Christian pilgrimage travel also has potential in key marketsthroughout the globe.

3) On the Mediterranean, there are 700,000 pleasure yachtstraveling throughout. Although France is the leader with120,000 moorings and Italy with 85,000 other countries aredeveloping large marina complexes to attract this growingmarket. 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:



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4) International golf tourism also has demonstrated strongpotential for successful development in the EasternMediterranean with a target goal of 100 courses by 2020 inTurkey alone.

5) Examples of other niche markets include wine tours, bird-watchers, sailing, scuba expeditions, wind-surfing, and thelike.

6) Second home development tourism shows some long-termpotential as well. Several coastal areas of Europe have

reached 50% penetration of holiday residences.7) Research suggests that second home buyers transiting into

primary residences are primarily motivated as much bycultural factors as they are by the environment.

Secondary/ Niche Markets

There are a host of niche markets that Israel can appeal to:



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Strategic Plan



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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 - 4.0million international visitors.

Creating a positive

Aquaria.mcm.Israel Tourism Analysis

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