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									                              HOSPITALITY AND TOURISM
                              ADVISORY SERVICES

Tourism Infrastructure and Product
The Ministry of Tourism
Government of Israel

November 2006
                              Quality in Everything We Do

   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

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                              The main goal is…
      To offer a high quality tourism product
     and a modern tourism infrastructure that
     would support growth in inbound tourism

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                              The main obstacles…

                               Aging infrastructure
                                 Limited funding
                               Limited cooperation

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2               Physical Infrastructure

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    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

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    Hotels                                                    Israel - Hotel Room Supply - Year End 2005
       Lodging Supply…                                                    Regional Distribution

     Largest lodging markets:                                        Other
             Eilat: 10,828 rooms (23%)           Herzeliya

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

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

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

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

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                                                    INTERNATIONAL PERSON NIGHTS
                                                        REGIONAL DISTRIBUTION

             Hotels                                           CHARTS

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

                                          Jerusalem                            Herzeliya
                      Jerusalem: 31%        30%

                      Tel Aviv: 24%                                          Haifa
                      Eilat: 11%                                             Tiberias

                      Tiberias: 5%                                            Dead Sea
                      Dead Sea: 5%
                                       Tel Aviv                                               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
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       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%

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       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

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       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
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    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
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    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
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    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

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       Present vs. Future

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    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
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    Sites and Attractions

    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.

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       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

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    Develop Amenities in Underdeveloped Areas

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

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    Attractions and Amenities
       Present vs. Future

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     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

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

     Improve taxi service
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    Future Development

     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

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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

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    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

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    The Ministry of Tourism

    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

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    The Ministry of Tourism

    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

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    The Ministry of Tourism

    Clear Criteria for Assessing Investments

     Establish clear criteria and processes for assessing investments in

     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.

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    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

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    Coordination with Public and Private Sector

    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

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    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

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    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

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    Regional Organizations

    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

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4                             Investment Environment

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 Tourism Investment Policy

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

  The product (supply-side)

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

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

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  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

   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.

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 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
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  Investment Catalyst #1: TIB

   Develop and promote product concepts to investors

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

   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.)

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  Investment Catalyst #1: TIB
  Current Decision-Making Structure

                               Ministry of                    Ministry of
                                Finance                        Tourism

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

                                Bank for                       Israel Land
                              Development                     Administration

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  Investment Catalyst #1: TIB
  New Decision-Making Structure


                              HAMAT                ILA

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

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  Investment Catalyst #2: Incentives


   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.

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  Investment Catalyst #2: Incentives

  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.

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5                             Summary

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     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

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