The Israeli Ministry of Tourism has been running an innovative marketing campaign, and for the last few years it has been encouraging travellers to sample the country's blend of ancient history and attractive beach resorts, and this is now paying off.

Although tourism is still held back by political conflict and violent flare-ups, around 1.9m people visited Israel in 2005, and the Ministry hopes to push this up to 3m by the end of this year. The recent historic meeting between the tourism ministers of Israel, Egypt, Jordan and the Palestinian Authority to promote tourism to the region will undoubtedly help.

Hotel performance over the past year is looking good. Year-to-March 2006 results from the European edition of the HotelBenchmark™ Survey by Deloitte showed revenue per available room (revPAR) in the three Israeli cities tracked – Jerusalem, Tel Aviv and Eilat – had increased substantially, two of them by more than 20%.

1.9m visitors and rising
According to The Central Bureau of Statistics, the number of visitors to Israel in 2005 increased by 26% compared to the previous year. While this looks impressive, that's 21% down on 2000, a record-breaking year when almost 2.5m tourists visited the country. But after violent clashes between Israelis and Palestinians in the latter part of that year, tourism plummeted, as the table below illustrates. This downward spiral continued until the situation became more peaceful in 2003, when visitor arrivals were up 23%.

Tourist arrivals to Israel 2000 – 2005

Europe remains Israel's largest source market, accounting for 56% of all tourist arrivals, closely followed by the Americas, with 32%. Of these, 311,000 came from France and 458,000 from the US, mainly because of family ties to people living in Israel.

Two-way deal
While a peaceful environment makes the country more appealing, the Israeli Ministry of Tourism (IMT) is continuing with innovative marketing campaigns to boost visitor numbers. Last November, the Ministry signed a two-way deal with South Korea - currently the largest source market in Asia – to invest in both countries' tourism industries and keep the numbers flowing.

In North America last year, the IMT ran a successful, four-month advertising campaign on the Yahoo! Internet portal. Aimed at travel agents, wholesalers and potential travellers, it was seen by tens of millions and proved extremely effective.

Arsenal joins the team
In March 2006, one of London's Premiership football clubs - Arsenal - signed a £350,000 deal with the IMT. Images of players and promotional messages will be screened at the new Emirates stadium, in North London. Fans at the stadium, as well as millions of TV viewers worldwide, will be targeted in this visually striking campaign.

Airlines make a welcome return
Meanwhile, the airline industry has not been standing still. In November 2005, TUI – Europe's leading tourism group travelling to Israel – resumed charter flights to the country. This demonstrated confidence in Israel as a favoured destination, and confirmed the IMT's continuing efforts to open the country's skies to competition.

Earlier this year, Air Madrid introduced its charter service linking key cities in South America to Israel via its hub in Spain. This will mean an additional 25,000 seats on flights between Israel and South America, where there is already a keen interest in the country. In 2005, there was a 43% increase in tourist arrivals from Central and South America, with visitors from Spain increasing by 142%.

A surge in tourists from Russia and Ukraine – countries with historical links to Israel - is anticipated this year. Both foreign and Israeli airlines plan to operate 51 scheduled weekly flights from key cities such as Moscow, St Petersburg and Kiev. As Russia and Ukraine are promising markets, the IMT is investing in a range of promotional activities and has opened a tourism office in Kiev.

Hotel performance mirrors visitor arrivals
The graph below shows revPAR performance in the three cities tracked between January 2000 and March 2006 on a rolling-12 basis, which mitigates the impact of seasonality. Two of the cities – Tel Aviv and Jerusalem – have mirrored the trend of tourist arrivals entering Israel. After the conflicts of 2001, occupancy rates in each city fell as low as 30% while revPAR dropped to US$38 and US$30 respectively. It wasn't until the middle of 2003 that hotel performance started its long journey back up to pre-2000 levels. However by the final quarter of 2005, each city had made it.

One destination that was less affected by the outbreaks of violence was Eilat. Located in the south of Israel by the Red Sea, Eilat boasts extensive beaches and diving areas and is regarded as a safer resort than other parts of the country.

Rolling-12 revPAR performance of selected Israeli cities January 2000 – March 2006

Despite the impact of the 2001 clashes, the investment being made by the IMT to raise the profile of Israel across the world is clearly having a positive spin on hotel performance.

Year-to-March 2006 saw double-digit revPAR growth in Jerusalem and Tel Aviv compared to 2005. Jerusalem was the best performing city with revPAR up 27%. This was driven by a 14% increase in average room rates, while occupancy was up 11%. In contrast, it was a 13% increase in occupancy that boosted revPAR growth in Tel Aviv, 22% to US$87.

Eilat took third place year-to-March 2006, achieving 5.4% growth in revPAR. Although a popular tourist destination regarded as a safe haven in troubled times, year-to-March average room rates in Eilat were still US$40-50 below its northern neighbours, Jerusalem and Tel Aviv.

Looking good
Year-to-March 2006 has already seen a 24% increase in arrivals compared to the first three months of 2005 – giving Israel a strong chance of achieving its 3m year-end goal. There is certainly opportunity for growth in this fascinating country, particularly if the recent suicide bombing in Tel Aviv is not repeated and political tensions ease.

Notes: All analysis in USD$

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