Recovery of the Tourism Sector Following Operation Protective Edge June 21, 2015

Transcription

1 Recovery of the Tourism Sector Following Operation Protective Edge June 21, 2015 The recovery in the number of incoming tourists to Israel, following the sharp decline that occurred during last summer s Operation Protective Edge, has ceased recently. Incoming tourists to Israel equaled 2.93m in 2014, 86% of which entered via air. The number of incoming tourists in 2014 was similar to the number in 2013, this despite Operation Protective Edge, which occurred in July-August of last year and caused a sharp decline (of about 40%) in the number of incoming tourists compared to the month preceding the military operation. In research conducted by the Bank of Israel (BoI) it was found that the loss caused to tourism sector exports as a result of the military operation amounted to an estimated sum of NIS 2bn in 2014 (0.2% of annual GDP). Nevertheless, the BoI estimates that local tourism was not hurt any more severely than the damage caused from the Second Lebanon War (July- August 2006). Since the end of Operation Protective Edge there has been an increase in the number of incoming tourists; however, it is important to pay attention to the fact that during the first four months of 2015 the increase in the number of incoming tourists ceased. This is against the backdrop of a sharp decline in tourists from Russia and Europe. If this trend continues also in the coming months, then the recovery trend in the tourist sector will likely be hurt. Furthermore, we note that the number of incoming tourists remains below the peak level measured just prior to last summer s military operation. In our opinion, and in light of experiences from previous security events in Israel (Diagram 1), the number of incoming tourists to Israel is expected to return to the level from before Operation Protective Edge in the beginning of 2016 (approximately one and a half years following the security event). This is dependent on there not being any additional severe security events during this period. The analysis of the origin countries from which tourists arrive into Israel shows that in % of tourists arrived from Europe; while 14% of total tourists arrived from Russia alone. Additionally, it is also worthwhile to note that the number of tourists arriving from the US equaled 21% of total incoming tourists in During recent months there has been a downward trend in incoming tourists from Russia. Thus, in the first quarter of 2015 incoming tourists from Russia equaled 102,000, reflecting a substantial 32% decline compared to the parallel period last year. The decline can be explained by, among other things, the geo-political situation in the country, as well as by the economic situation, which derived partially from international sanctions imposed on Russia, and which led to a substantial weakening of the local currency. Over the past 12 months The Economics Sector, P.O.Box 2, Tel Aviv Ph: , Fax: , Gilbu@bll.co.il

2 (May 2014 May 2015) the ruble weakened against the US dollar by 50%, and by 30% against the shekel. DIAGRAM 1: Index on incoming tourists via air following the breakout of security events. Base: average incoming tourists in the three months before the breakout of events = 100. Seasonally adjusted data operation protective edge operation cast lead operation pillar of defence second lebanon war Months since the start of the geopolitical instability As a result of the weakness in the Russian currency and the instability of near term the economic outlook for Russia, the price of vacationing in Israel for Russian tourists became much more expensive. This along with a perceived change in the affordability of vacationing in Israel led to a decline in the number of incoming Russian tourists and/or to a decline in the expenditures in Israel by the average Russian tourists. This is a substantial change, since Russian tourists usually spend relatively high sums during their visits to Israel on a wide variety of services: accommodation, transportation, food (primarily restaurants), tour guides, entrance fees to sites, purchases, medical tourism, and more. Another trend that is important to note is the depreciation in the exchange rate of the euro visà-vis the shekel. It appears that this depreciation was responsible to some degree for the decline in the number of incoming tourists from Europe (excluding Russia), by a rate of 17% during the first four months of 2015 compared to the parallel period of last year. Similar to the effects of the depreciation in the ruble, the euro weakness caused a rise in vacationing costs for European tourists, and to a certain degree shifted the demand to less expensive tourist destinations. In the event the appreciation of the shekel vis-à-vis the ruble and the euro will continue, the recovery in the number of incoming tourists to Israel, as a correction to the effects of Operation Protective Edge, will take longer. 2

3 When analyzing the reasons tourists come to Israel 1 it is discovered that one-quarter of tourists arrive to visit relatives and friends, and one-quarter of them arrive for touring and sightseeing. In addition, many of the tourists arrive for purposes of religion, such as pilgrimages. On this regard we note that most of the tourists who entered in 2013 were Christians, approximately 53%, while 26% were Jewish. The number of overnight hotel stays in January April 2015 reached 6m, of which 42% were by foreign tourists. This figure is 10% below the figure from the same period last year. It is important to emphasize that the decline in the number of overnight hotel stays originates in the number of overnights stays by foreign tourists (Diagram 3); since the number of overnight stays by Israelis increased 6% in the same period. It should be noted that the freeze in the number of overnight stays by foreign tourists in recent months is an additional negative signal regarding the rate of recovery of the sector from Operation Protective Edge. Furthermore, it is interesting to see that also the number of overnight stays by Israelis has stabilized since the conclusion of the military operation; albeit at a rate above that from the level before the fighting DIAGRAM 2: Overnight hotel stays by foreign and Israeli tourists Thousands, seasonally adjusted data 1,200 1,100 1, Israelis Tourists The data on room occupancy rates according to show that a decline in occupancy was registered in all regions in the first quarter or this year compared to the parallel quarter of last year. The sharpest decline in occupancy (17%) occurred in the Jerusalem, apparently against the backdrop of security uncertainty, and continuing unrest also following Operation Protective Edge. 1 From the fiscal year 2015 budget proposal, Finance Ministry, according to 2013 data. 3

4 Revenues at tourist hotels amounted to NIS 9.5bn in 2014 (nominal value), with one-third of revenues deriving from foreign tourists and the remainder from Israelis. In this period, revenues from foreign tourists declined 4%, while revenues from Israelis increased 2.7%. It should be noted that the data from the first half of 2014 (before Operation Protective Edge) show an 8% expansion compared to the parallel period from the preceding year, which illustrates the negative impact the military operation had on the sector. It is our belief that the consequences of the fighting will be reflected also in the revenues from the first half of 2015, which will be low compared to revenues from the parallel period in the preceding year. DIAGRAM 3: Room occupancy rates according to Jerusalem North Haifa Central Tel Aviv South Total Q Q The average monthly number of employment positions in tourist hotels equaled 35,400 positions in 2014, with 31,000 of these positions being hotel employees and the remainder employed by employment agencies. This represents a 3.7% increase in the average number of positions compared to Despite the increase in the average number of hotel workers in all of last year, in July 2014 a downward trend occurred in the number of employment positions, which continued also in the months following Operation Protective Edge. This development may be an indication of the pessimistic expectations of the hotels regarding recovery in the sector from the military operation (as were expressed in expectations surveys by the Central Bureau of Statistics), and regarding the negative effects of the depreciation in the exchange rates of the ruble and the euro. Another trend that continued during 2014 involved a reduction in the proportion of those employed via employment agencies out of total employed. It is worthwhile to note that many of the workers at hotels earn low salaries, and they do not have many employment alternatives. The average monthly salary for a salaried position in a hotel was NIS 7,000 for a hotel employee, whereas the average salary for a worker employed via an employment agency was NIS 5,100. The explanation for the gap between the two salaries is that most of the 4

5 managers at a hotel, who earn a relatively high salary, happen to be employed directly by the hotel, and this shifts upwards the average salary of all employees at hotels. In summary, Operation Protective Edge, which occurred in the second half of 2014, ended the positive trend in the local tourism sector. Due to the military operation, all the central economic indicators of the sector suffered damage, including: the number of overnight stays at tourist hotels, total employed in the sector, hotel revenues, and more. During the first four months of 2015 the upward trend in the number of incoming tourists to Israel ceased, due to, among other things, the decline in tourists arriving from Russia, who account for 14% of total incoming tourists, and also due to the depreciation of the euro vis-à-vis the shekel. If this trend continues during the coming months, then it will likely hurt the tourist sector s recovery from Operation Protective Edge. On the other hand, it is worthwhile to note that the demand for tourism services by Israelis continues to be strong, and it appears the effect of the military operation on internal tourism was marginal. Written by: Maxim Priampolsky, Department of Economics The data, information, opinions and forecasts published in this publication (the Information ) are furnished as a service to the readers and do not necessarily reflect the official position of the Bank. The above should not be seen as a recommendation and should not replace the independent discretion of the reader, nor should it be considered an offer or invitation to receive offers or advice whether in general or in consideration of the particular data and requirements of the reader to purchase and /or to effect investments and/or operations or transactions of any kind. The Information may contain errors and is subject to changes in the market and to other changes. Likewise, significant discrepancies may arise between the forecasts contained in this booklet and actual results. The Bank does not undertake to provide the readers with notice, in advance or in retrospect, of any of the aforementioned changes by any means whatsoever. The Bank and/or its subsidiaries and/or its affiliates and/or the parties controlling and/or parties having an interest in any of them may, from time to time, have an interest in the information represented in the publication, including in the financial assets represented therein. 5