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Jacob Wolinsky
Hedge fund expert

Israel’s Tourism and Leisure Industry Set For Strong Recovery in 2023

Israel’s tourism and leisure industry is set for strong recovery this year, as the country welcomes an influx of foreign arrivals, despite seeing an increase in airfares and higher lodging prices on the back of wider macroeconomic challenges.

Close to the end of last year, the Tourism Ministry reported figures that showed some 2,078,000 tourist arrivals in the country within the first ten months of the year.

At the time, the Ministry was positive that if this trend continues, the country would see a record 2.4 million to 2.6 million foreign visitors by the end of 2022.

Following the devastation of the COVID-19 pandemic in 2020, bringing the industry to a near standstill, international tourist arrivals fell by 81.7% compared to the year before.

That year, Israel welcomed just over 830,000 foreign visitors, as pandemic-related restrictions and safety-related risks kept businesses closed for months on end, and border closures further tightened entry restrictions for foreigners into the country.

However, things seemed to take an even deeper dive the following year, with tourist arrivals falling 91.3% below pre-pandemic levels, with only 397,000 arrivals recorded for 2021.

At the time, the top source markets included the United States, which accounted for 37.5% of all international inbound arrivals, France, and the United Kingdom.

But things have started to look up again for the country’s steadily recovering tourism industry, as an easing of pandemic restrictions, partially due to increased vaccination numbers, and an overall decline in health risks related to COVID-19 have started to wane throughout the tail-end of 2021.

Tourism is a driver of economic activity

Prior to the pandemic, the tourism and leisure industry held a steady share of Israel’s economy. In 2019, the industry accounted for 2.6% of Gross Domestic Product (GDP). During this time, the tourism industry employed close to 150,000 Israeli residents, holding a 3.8 percent share of the country’s total employment.

While the industry’s GDP share fell to 1.1% following the tumultuous years of lockdowns and border closures, prospects for the industry are now starting to improve on the back of foreign direct investment and increased traveler spending.

The Ministry of Tourism’s efforts to revive the industry has encouraged key foreign investors in the hotel and accommodation industry to bring new business and employment opportunities to the country.

Back in 2021, the Ministry introduced a new program that looks to promote international investments through grants valued at 20% of the investment for newly built infrastructure, extensions, or conversions on existing buildings.

The implementation of these procedures gives priority to destinations in the country that have seen high tourist demand in recent months.

These efforts are already working in favor of the country’s recovering tourism industry.

Accor Hospitality Group, one of the largest of its kind in Europe, and sixth largest globally has planted its stake well within Israel, looking to lay the foundations of new luxury accommodation hotels in the country.

A hefty USD$1.2 billion has been invested by Accor, which currently plans to manage around 61 hotel developments and construction projects in the high-end luxury category according to data from Top Hotel Projects (THP).

Making up the 11,000 new rooms Accor is set to build in the coming years, is 46 four-star hotels, and 15 five-star locations.

Delivery of these premium accommodation destinations is set to be completed over the next several years, which in return would help bolster the economy’s growth and further increase employment in the hospitality, leisure, and construction sector.

This year roughly 15 projects are set to reach their completion milestone, with a record-breaking 21 on the books for next year. By 2025, Accor looks to complete roughly 10 projects, with an estimated three for delivery in 2026 and two in 2027. The remaining 10 have yet to be finalized with an expected delivery date.

The activity is however not centralized around one particular region or city, as most of the projects will be geographically spread between Tel Aviv, Jerusalem, Eilat, and Ein Bokek will also see new developments laying the ground in the coming years.

The Ministry is rapidly diversifying its tourism reach, hoping to promote less conventional activities and attractions for foreign travelers.

Spreading these across multiple cities across the country would mean that tourism isn’t only concentrated in one central region, and ensures that other cities could see a steady influx of foreign travelers in the coming years.

Creating a more balanced approach and recovery strategy, the Ministry aims to help areas that have seen meager tourism improvement in recent years following the pandemic.

Some challenges remain

Although the industry has seen overwhelming recovery throughout much of last year, challenges relating to a tight labor market remain one of the industry’s biggest headwinds.

A lack of workers meant that the tourism infrastructure of the country had to operate with fewer employees in high-demanding positions in accommodation, hospitality, and ground personnel at airports.

Another difficulty is the collapse of the global supply chain, which saw different segments of the tourism industry having limited access to the necessary materials that they normally require to operate.

However, this problem is not only localized to Israel, as labor shortages in critical tourism roles and the cureless supply chain issues resulted in a tourism catastrophe last year, with hundreds of flights being canceled or delayed each day.

A shortage of workers led to even bigger issues as customs and immigration, which saw thousands of tourists either stranded or leaving on their holidays without their luggage due to a lack of luggage handlers.

Marked as “the summer of travel chaos” several airlines have already gone on a frantic hiring spree to fill open positions before the season starts to take off again.

Israelis are taking to the skies again

After more than two years of border closures and pandemic restrictions, an increasing number of Israeli travelers are now taking to the skies once again.

Pent-up travel demand has seen the number of Israelis traveling overseas now surpassing pre-pandemic levels.

According to data released by the Central Bureau of Statistics, more than 569,100 Israelis took trips abroad in February 2023 alone.

These figures represent a steady increase compared to February 2022, with 309,400 Israelis taking trips abroad, and 452,100 in February 2020, right before the COVID-19 outbreak took hold of the global travel industry.

Overall, the first two months of 2023 already saw more than 1,173,000 trips abroad, compared to the 494,800 during January and February 2022, and the 995,100 for the same recorded period in 2020.

Driven by pent-up demand and an ongoing eagerness to travel again, the coming months could present more uplifting figures that show an even bigger number of Israelis looking to travel now that the domestic and global tourism industry is steadily recovering to pre-pandemic levels.

While there’s still a host of challenges that could derail the possible recovery of Israel’s tourism recovery, strong partnerships between government authorities and private foreign investors are helping drive new investment opportunities and business for the domestic tourism and leisure sector.

Apart from this, Israelis’ resilience to once again take to the skies, as pent-up demand has driven their eagerness to travel this year could help fuel new developments in the country’s international tourism representation.

About the Author
I am the founder and CEO of ValueWalk - a popular financial information company. Before launching ValueWalk, I was first an equity analyst at a micro-cap focused private equity firm and then moved to a small/mid-cap value-focused research shop. I also have experience working in business development for hedge funds. I live with my wife and four kids in Passaic, New Jersey.
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