In the past year, Israel’s hotel sector has continued to demonstrate its resilience and its ability to withstand the impact of COVID-19, similar to the way it has bounced back from so many previous adversities.
The domestic tourism market has been a saviour – achieving growth in excess of 2019’s levels by the end of 2022 – and there are now signs that international visitation is recovering strongly, and we are confident that, barring any unforeseen challenges, this could have recovered to 2019 levels by the end of 2023.
Israelis have an unquenchable thirst for travel, and the opportunities created by the signing of the Abraham Accords, nearly three years ago as I write this (June 2023), have resulted in huge numbers exploring the charms of the United Arab Emirates in particular, with the other main signatory countries – Bahrain and Morocco – welcoming more Israelis.
During 2022, HVS formed an alliance with the Abraham Accords Peace Institute (AAPI), a non-partisan, non-profit US organisation dedicated to supporting the implementation and expansion of the historic Abraham Accords peace agreements, to advise on ways in which tourism between the countries can be expanded, thereby enabling growth in each country’s GDP.
We published our first report – Leveraging the Abraham Accords to Stimulate Tourism Growth – earlier this year. The objective of this report was to identify those opportunities, through the growth of tourism, that will deepen the relationships and cultural understanding between the people of the countries which are signatories of the Accords and build tourism’s contribution to the GDP of each country. Once successful, this will strengthen the value of the Accords amongst the existing countries and demonstrate concrete benefits to other countries that are considering becoming part of this historic opportunity.
The report included a detailed analysis of tourism opportunities for each of the Abraham Accords (AA) countries along with some of their key neighbours. Among our many recommendations for Israel, we encouraged the creation of a special department in the Ministry of Tourism responsible for using the AA as a catalyst to (1) grow tourism to Israel from the member nations and (2) create and promote regional initiatives to grow tourism from all the member nations. Additionally, Israel should develop a robust marketing plan for each member nation, allocate VIP accreditation to bona fide travellers from AA nations to ensure a smooth and safe travel experience, and establish an eVisa facility for nations that offer such options to Israeli travellers.
Such is the importance of the visa situation that we have just published a follow-up paper with AAPI – Easier Visas Lead to Tourism Growth and Increased GDP – which indicates that improved visa procedures would expand the movement of tourists among AA member nations, resulting in potential economic growth and stronger people-to-people ties. The reduction in barriers to increased tourism is an integral component in enabling regional trade and economic partnerships. In general, countries that have a more traveller-friendly policy regarding entry visas benefit from expanded tourism growth, which has a positive effect on their GDP.
My colleagues and I hope that this annual review of the Israel Hotel Market will assist investors, developers, owners and operators of hotels in Israel – both within the country and from abroad – to be part of the opportunity to grow the country’s hotel sector and the consequent improvement in its GDP as the travel and tourism sector increases its prominence within the Israeli economy.
A Resilient Economy
The Israeli economy experienced a decade of flourishing growth, positioning itself as one of the top performers among OECD countries with an impressive GDP compound annual growth rate (CAGR) of 6.0% between 2010 and 2019. However, 2020 marked a significant downturn for the economy, with a contraction of 1.9% in GDP, the first decline since 2002.
Despite this setback, the Israeli economy has exhibited a robust recovery following the COVID-19 pandemic, aided by a successful vaccination campaign. It has also demonstrated strength in the face of the repercussions of Russia’s war on Ukraine, driven by its resilient economic sectors such as high-technology, industrial manufacturing, energy, financial services, tourism and agriculture.
Although inflationary pressures have emerged, Israel has managed to maintain relatively better control than many European and global nations, primarily due to its self-sufficiency in natural gas. Looking ahead, Israel’s GDP growth is expected to be moderate in the short- to medium-term, but it is anticipated to remain substantial and robust, as illustrated in Figure 1.
Figure 1: Israel’s GDP Proving Real Growth
Source: International Monetary Fund, April 2023
Undeniably, the travel and tourism sector plays a significant role in contributing to Israel’s GDP. It serves as a vital economic pillar, generating revenue, creating jobs and attracting foreign exchange. It contributed US$16 billion (3.0%) to GDP in 2022, according to the WTTC, which remains 28% short of the 2019 contribution to GDP of US$22 billion (5.6%) but shows a significant 66% increase over the lowest contribution in 2020.
Two Years of the Abraham Accords
The historic signing of the Abraham Accords in August 2020 has presented an unparalleled opportunity to reshape the Middle East by fostering unity and moving beyond longstanding conflicts. Originally established between Israel and the United Arab Emirates (UAE), the Accords have expanded to involve several other nations, including Bahrain, Kosovo, Sudan and Morocco.
Figure 2: 2022 Trade Numbers with Israel Show Significant Increase Over 2021 Levels
(% increase over trade activity in 2021)
Source: Abraham Accords Peace Institute, 2022
This expansion has unlocked the potential for growth by facilitating regional coordination in crucial economic areas such as trade and tourism, thus aiding the recovery of the tourism sector, which has been impacted by the COVID-19 pandemic. The strategic focus and collaboration among these nations hold immense potential for generating substantial economic gains and sociocultural benefits throughout the region.
Significant progress has been made in the first two years since the Accords’ signing, particularly in deepening diplomatic relations between the participating governments. This progress is evident through the opening of embassies, the appointment of first-ever ambassadors and some bilateral visits involving prime ministers and foreign ministers.
The Abraham Accords have contributed to Israel’s economic growth by facilitating trade among the member nations. This potential is expected to expand further as relations between these nations continue to strengthen. The 2022 trade numbers between Israel and the AA members are presented in Figure 2. A focus has now been placed on expanding the people-to-people ties between AA member nations. The involved countries will work to increase tourism and cultural collaboration with Israel, notably by introducing new airline routes between capital cities.
Inbound Tourism on the Rise Again
Between 2016 and 2019, prior to the pandemic, Israel’s tourism industry experienced remarkable growth in terms of tourist arrivals, with a CAGR of 16.2%. This growth was attributed to targeted marketing efforts, visa regulation facilitation and an increase in the number of air routes, thanks to the implementation of the Open Skies agreement.
Data for 2020 and 2021, on the other hand, saw consecutive declines in foreign tourist visits to Israel. Due to the pandemic, Israel closed its borders to foreign visitors and only permitted entry to fully vaccinated tourists in November 2021, a decision overturned four weeks later in response to the spread of the Omicron variant.
From March 2022 onwards, all tourists, vaccinated or not, were allowed entry by providing pre- and post-flight PCR tests, aimed at supporting the struggling tourism industry. All pandemic-related entry restrictions were then lifted later in October. As discussed in our last Israel Hotel Market Overview, countries and markets with a greater reliance on international demand and air travel are likely to experience a longer tourism recovery curve.
While domestic tourism dominated the share of room nights spent in Israel in 2022 (accounting for 69%), it is expected that foreign travellers will soon regain their 2019 share of around 47% and even surpass domestic traveller numbers. This projection takes into account Israel’s significant efforts in promoting tourism, the current increase in attractiveness of certain cities and regions, and the successful development of regional, cultural and religious tourism driven by the Abraham Accords.
Domestic Tourism at an All-Time High
The domestic tourism sector in Israel reached an all-time high in 2022 with close to 16 million domestic travellers recorded, reflecting the changing travel landscape amidst the pandemic. With international travel restrictions still in place early in the year and several geopolitical uncertainties, Israelis continued opting to explore their own country, leading to a surge in domestic tourism, otherwise known as ‘staycations’.
Read the full report here
