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					                              HOSPITALITY AND TOURISM
                              ADVISORY SERVICES




Tourism Infrastructure and Product
The Ministry of Tourism
Government of Israel


November 2006
                          e
                              Quality in Everything We Do
    Agenda

   1 Introduction
   2 Physical Infrastructure
   3 Organizational Infrastructure
   4 Investment Environment
   5 Summary




Quality in Everything We Do    1     e
1               Introduction




Quality in Everything We Do    2   e
    The Primary Research
       Researching Israel’s Tourism Infrastructure and Product

     Interviews with 104 tourism industry stakeholders in Israel

     135 site inspections of tourism infrastructure

     Survey interviews with a total of 8,400 respondents in 8 countries

     Total of 18 focus groups in 8 countries

     51 interviews with international tour operators in 8 countries

     Research at 2006 ITB Trade Show



Quality in Everything We Do                  3                   e
                              The main goal is…
      To offer a high quality tourism product
     and a modern tourism infrastructure that
     would support growth in inbound tourism




Quality in Everything We Do           4           e
                              The main obstacles…

                               Aging infrastructure
                                 Limited funding
                               Limited cooperation


Quality in Everything We Do             5             e
2               Physical Infrastructure




Quality in Everything We Do   6           e
    Destination Israel
       Putting things in prospective…

     Demand In 2005:
               1.9 million international visitors – 26.4% increase over 2004
               85% from Europe and North America
               58% from US, France, UK, Germany and Italy
     Supply in 2005:
               334 hotels – 46,700 guestrooms
               7,700 rural guestrooms (Zimmerim)
               29 youth hostels – 6,190 beds
               60 National Parks and Nature Reserves; 200 museums; 35,000 known
                archeological sites; 5 World Heritage Sites; numerous religious and
                historical sites; natural, sports and entertainment attractions

Quality in Everything We Do                      7                              e
    Hotels                                                    Israel - Hotel Room Supply - Year End 2005
       Lodging Supply…                                                    Regional Distribution

     Largest lodging markets:                                        Other
                                                                      19%
                                                                                                            Jerusalem
                                                                                                               20%
                                                      Safed
                                                       1%
             Eilat: 10,828 rooms (23%)           Herzeliya
                                                     1%

             Jerusalem: 9,218 rooms (20%)        Netanya
                                                    3%
                                                     Haifa                                                              Tel Aviv
             Tel Aviv: 5,865 (13%)                   3%                                                                  13%


             Dead Sea: 4,011 (9%)                     Tiberias
                                                         8%

             Tiberias: 3,961 (8%)
                                                                  Dead Sea

             Top 5 combined: 33,883 (73%)                          9%                              Eilat
                                                                                                    23%
                                      Jerusalem   Tel Aviv    Eilat   Dead Sea   Tiberias   Haifa   Netanya      Herzeliya    Saf




Quality in Everything We Do                  8                                                e
                                                    INTERNATIONAL PERSON NIGHTS
                                                        REGIONAL DISTRIBUTION


             Hotels                                           CHARTS

                Lodging Demand…
         Year 2000                                                                                        Year 2005
              Top 5 lodging markets by share of
                                                                                                  Other
%
 r
               total international person nights:                                     Safed
                                                                                       0%
                                                                                                  14%

                                          Jerusalem                            Herzeliya
                                                                                                                                       Jerusalem
                                                                                 3%
                      Jerusalem: 31%        30%
                                                                             Netanya
                                                                                                                                          31%

                                                                               4%
                      Tel Aviv: 24%                                          Haifa
                                                                               3%
                      Eilat: 11%                                             Tiberias
                                                                                 5%

                      Tiberias: 5%                                            Dead Sea
                                                                                 5%
                      Dead Sea: 5%
                                       Tel Aviv                                               Eilat
 Eilat
                      Top 5 combined: 76%
                                         16%                                                  11%                           Tel Aviv
 17%                                                                                                                          24%


 iv        Eilat             Dead Sea             Tiberias                   Jerusalem        Tel Aviv      Eilat           Dead Sea       Tiberias
ya         Herzeliya         Safed                Other                      Haifa            Netanya       Herzeliya       Safed          Other
         Quality in Everything We Do                                     9                                              e
    Hotels
       Lodging Demand…

     International person night in 2005 versus 2000:

             Haifa: + 20%
             Herzeliya: + 20%
             Tel Aviv: + 2%
             Dead Sea: - 25%
             Jerusalem: - 28%
             Netanya: - 43%
             Eilat: - 54%
             Tiberias: - 60%

Quality in Everything We Do          10                 e
    Hotels
       Lodging Demand…

     Spending per international person night in 2005:
             Herzeliya: $125
             Tel Aviv: $95
             Dead Sea: $81
             Haifa: $77
             Eilat: $76
             Jerusalem: $70
             Tiberias: $48
             Netanya: $37


Quality in Everything We Do          11                  e
    Hotels
       Some general observations…

     Dated and relatively unsophisticated
     Generic in appearance
     Do not incorporate unique architecture and design
     Do not reflect current trends in hotel development
     Do not fully capitalize on their surroundings
     In need of renovation
     Limited variety in product
     Few international brands
     Highest quality: Eilat, Jerusalem and Tel Aviv
     Lowest quality: Netanya, Haifa and the Dead Sea
Quality in Everything We Do              12                e
    Hotels
       Recommendations

    First Priority: Renovate Existing Hotels
     Faster and requires smaller capital investment than new development
     Once several hotels in each sub-market are renovated, others may
      follow suit in order to remain competitive
     Higher-quality lodging product would:
               Improve traveler’s experience
               Promote perception of high-value
               Improve Israel’s standing relative to other destinations
               Encourage repeat visitation
               Facilitate efforts to attract major international hotel brands
Quality in Everything We Do                       13                             e
    Hotels
       Recommendations

    Second Priority: Develop New Hotels
     New lodging development could induce overnight demand

     Develop lodging products that currently are under-represented in Israel

     New development should meet market needs: primarily high-quality
      moderately-priced 3-4 star hotels and architecturally-distinct hotels

     Develop architecturally distinct, flagship luxury hotels, with broadly
      recognized international brands – Tel Aviv and Jerusalem

     New hotels should offer a sense of place, incorporate local architecture
      and design and capitalize on their surroundings
Quality in Everything We Do               14                          e
    Hotels
       Recommendations

    Attract Well Known International Hotel Brands

     Attract well known international hotel brands to increase
      awareness and visibility of Israel as an international destination

     Applies to both conversions and new developments

     Major hotel brands could induce high-rated demand and raise the
      standards for existing hotels

     International brands are important to American travelers


Quality in Everything We Do            15                        e
Hotels
       Present vs. Future




Quality in Everything We Do   16   e
    Sites and Attractions
       Some general observations…

     Unmatched concentration of unique attractions in small geography
     Jerusalem is the “anchor” attraction
     Most attractions currently have excess capacity
     Many are in need of renovation and further development
     Many are poorly maintained
     Majority do not include high-quality tourist-oriented facilities and amenities
     Public infrastructure in some tourist areas is in poor condition
     Insufficient awareness of attractions
     There are examples of well-developed attractions
     According to focus groups and trade interviews: limited interested in casino
      or theme park
Quality in Everything We Do                17                            e
    Sites and Attractions
       Recommendations

    First Priority: Further Develop Existing Sites and Attractions
     Further develop, expand and upgrade existing attractions in order to make
      them truly exceptional
     Improve facilities, incorporate new technologies and multimedia tools, add
      and upgrade amenities and generally enhance the visitor experience
     Upgrade and better maintain public infrastructure in tourist areas: Old City
      of Jerusalem; Tel Aviv beachfront; Eilat promenade; Tiberias city center; etc.
     Capital investments by the public sector, public-private partnerships, private
      donations, corporate sponsorships, etc.



Quality in Everything We Do               18                           e
    Amenities
       Some general observations…

     Israel has ample high-quality amenities

     Examples of markets that generally offer high-quality amenities:
               Tel Aviv             Haifa
               Jerusalem            Herzeliya
               Eilat

     Examples of markets that do not offer sufficient amenities:
               Dead Sea             Akko
               Tiberias             Nazareth
               Netanya              Safed




Quality in Everything We Do               19                         e
    Amenities
       Recommendations

    Develop Amenities in Underdeveloped Areas

     Develop additional amenities in submarkets that currently lack high
      quality/value amenities:
               Food and beverage
               Retail
               Nightlife




Quality in Everything We Do              20                          e
    Attractions and Amenities
       Present vs. Future




Quality in Everything We Do   21   e
    Transportation
       Recommendations

     Reform aviation policy

     Make airport security more tourist-friendly

     Provide better information resources on public transportation

     Make public transportation more tourist-friendly by improving signage,
      providing schedules and system maps in English, etc.

     Consider needs of international tourists in future development of mass
      transit

     In the short-term increase number of direct charter flights to Eilat

     Improve taxi service
Quality in Everything We Do                22                           e
    Future Development
       Recommendations

     Development efforts should be concentrated in Israel’s
      primary tourism areas
               Make those destinations truly exceptional

     Specific areas that have substantial growth potential include:
               Jerusalem
               Tiberias
               The Galilee
               Tel Aviv
               Akko

Quality in Everything We Do                 23              e
3               Organizational Infrastructure




Quality in Everything We Do   24         e
 Organizational Infrastructure
   What organization are involved in Israeli Tourism?
    National Government Organizations
         e.g. Ministry of Tourism, Ministry of Finance, Ministry of Transportation

    National Public Sector Organizations
         e.g. Israel Nature and Parks Authority, Israel Antiquities Authority

    National Private Sector Organizations
         e.g. Israel Hotel Association, Israel Incoming Tour Operator Association

    Regional Public Sector Organizations
         e.g. Red Sea Resort Tourism Administration, Western Galilee Tourism Trust

    Regional Private Sector Organizations
         e.g. Tel Aviv Hotel Association, Jerusalem Hotel Association


Quality in Everything We Do                           25                             e
    The Ministry of Tourism
       Some key observations…


     No clear strategy and methodology
     Little long-term planning
     Reactive not proactive
     Bureaucratic and thus slow moving
     Limited expertise in financial evaluation of development projects
     Approves projects without securing maintenance budgets
     Promotes developments that do not always meet market demand

Quality in Everything We Do           26                       e
    The Ministry of Tourism
       Recommendations

    Reform the Ministry’s Operations

     Reform the Ministry to become less bureaucratic and more
      responsive to changing market conditions

     Adopt more business-like mentality

     Focus on streamlining processes, reducing hurdles, establishing
      goals and objectives, measuring success and demanding
      accountability



Quality in Everything We Do         27                       e
    The Ministry of Tourism
       Recommendations

    Long-Term Strategy

     Adopt a clear research-driven strategy for the development and
      marketing of Israeli tourism

     The strategy should set short, medium and long-term goals and
      establish tools to measure success

     Adopt long-term planning and budgeting, as well as clear methods
      for economic and financial analysis



Quality in Everything We Do         28                       e
    The Ministry of Tourism
       Recommendations

    Clear Criteria for Assessing Investments

     Establish clear criteria and processes for assessing investments in
      tourism

     Include clear and systematic financial analysis/screening

     Evaluate investments based on fit with Israel’s overall tourism
      strategy, financial viability, economic impact, guaranteed availability
      of funds for ongoing maintenance, etc.



Quality in Everything We Do            29                        e
    Coordination with Public and Private Sector
       Some key observations…


     The Ministry has limited coordination and cooperation with public
      and private sector:
               Other government ministries
               Municipalities
               National public and private organizations
               Regional public and private organizations

     No established forum for regular cooperation




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


    Establish a Forum for Cooperation
     Establish a forum for the Ministry to work with the private sector and
      other public sector organizations

     Hold regular, frequent and systematic meetings in which ideas could be
      exchanged and opportunities and challenges discussed

     Include the Tourism Ministry, the Finance Ministry, the Israel Hotel
      Association, the aviation sector, the Israel Incoming Tour Operators
      Association, relevant municipalities and other organizations


Quality in Everything We Do              31                         e
    Regional Organizations
       Some key observations…

     Multitude of public and private organizations involved in the tourism
      industry on regional level:

               Regional Tourism Associations

               Regional Hotel Associations

               Regional Tourism Development Organizations




Quality in Everything We Do                     32             e
    Regional Organizations
       Some key observations…

     General characteristics:
               Small, employ few employees and have limited budgets
               Responsible for small geographic areas (micro-regions)
               Limited international reach / marketing
               Focus on the domestic market
               Overlap with other regional organizations
               Limited interaction and coordination with other organizations
               Compete rather than cooperate with other organizations


Quality in Everything We Do                 33                        e
    Regional Organizations
       Recommendations

    Consolidate Regional Organizations
     Encourage the consolidation of small regional organizations
     Create incentives for small organizations to merge and
      disincentives for those organizations that refuse to merge
     New integrated organizations should have larger budgets and
      better marketing capabilities
     Regions of focus: the Galilee, the Northern and Central Coastal
      Regions


Quality in Everything We Do          34                       e
4                             Investment Environment




Quality in Everything We Do            35        e
 Tourism Investment Policy

  A demand-side perspective is an                   Holistic Strategy
   insufficient basis for a tourism
   strategy                                                        Economic
                                             Visitation
                                                                    Returns

  The product (supply-side)
   matters!

  Traditional paradigm:                                   Marketing
   Marketing => Visitation =>
   Economic returns                                       Earned Media

  Israel requires a paradigm with a
                                            Investment             Destination
   new focus… the investor.                 Facilitation          Development


Quality in Everything We Do            36                              e
  Investment Catalyst #1: TIB
  Establish a single Tourism Investment Board (TIB):
   A prospective investor in tourism in Israel faces a confusing array of
    organizations and procedures to gain government approvals and/or
    grants.

   There are presently five separate organizations with responsibility for
    tourism investment.

   Not only does this create confusion and inefficiencies, it does not allow
    for an overarching development strategy to be implemented.

   Turnover within key organizations undermines continuity of any strategy
    that may exist.

Quality in Everything We Do            37                        e
 Investment Catalyst #1: TIB

 Tourism Investment Board (TIB) will be responsible for tourism
 investment, grants, incentives and partnerships with the private sector.
 This will integrate attractions and lodging strategy under a common
 long term vision.
  A separate entity, under the umbrella of the Tourism Ministry. Separate full-
   time staff.
  Final decisions on projects will be taken by the TIB board, which will include
   IMOT, HAMAT, Finance Ministry, and the Land Administration.
  Guided by an established set of investment goals and strategies including:
                  Lodging                Product improvement
                  Attraction-related     Attractions development
                   Infrastructure
Quality in Everything We Do              38                           e
  Investment Catalyst #1: TIB

   Develop and promote product concepts to investors

   TIB will act as a concierge to court prospective investors. Fast-track
    approvals

   TIB will develop in-house evaluation metrics for projects

   Initially funded by the government. Joint ventures should be sought
    to fund the TIB in the longer term. (TIB should not be considered a
    developer – only a promoter and/or participant.)




Quality in Everything We Do          39                         e
  Investment Catalyst #1: TIB
  Current Decision-Making Structure


                               Ministry of                    Ministry of
                                Finance                        Tourism



            Investment
              Center,
                                             Tourism Investment                HAMAT
             Ministry of
           Industry, and                          Decisions
           Trade & Labor



                                Bank for                       Israel Land
                              Development                     Administration




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


                                         IMOT




                                        Tourism
                              HAMAT                ILA
                                      Investment
                                         Board




                                       Finance           Legislation may be required to
                                                         establish the TIA. However, the legal
                                                         environment was not assessed in
                                                         relation to the new entity.

Quality in Everything We Do                41                          e
  Investment Catalyst #2: Incentives

   Realities

   1. Current grant and incentive system is too limited to make an impact.

   2. Israel’s investment incentives must address the real issue of a
      deteriorating product in the midst of new regional development of a
      much higher quality.

   3. Further, incentives need to address the particular risks to tourism
      investment in Israel.

   4. And these incentives must be at least as compelling as those of
      destinations competing for the same capital and developers.


Quality in Everything We Do             42                          e
  Investment Catalyst #2: Incentives
  Recommendations

  1. Award grants and incentives for renovations, not just for expansions
     and new projects.

  2. Require a budget for annual maintenance as a grant criterion.

  3. Offer low interest financing for projects of special significance and/or
     when private financing is difficult to obtain. For mega projects, the
     government can back bonds.

  4. Offer a safety net policy to investors to counterbalance security risks.

  5. Seek private sector equity and operational expertise in public projects.

Quality in Everything We Do              43                          e
5                             Summary




Quality in Everything We Do             44   e
    Summary
     Renovate existing lodging supply
     Develop new lodging
     Attract well-known international hotel brands
     Further develop existing attractions
     Develop amenities in underdeveloped areas
     Address issues relating to transportation to and in Israel
     Reform the Tourism Ministry
     Consolidate regional organizations
     Establish a tourism investment Board
     Provide better incentives for tourism development

Quality in Everything We Do              45                        e
Quality in Everything We Do   46   e

				
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