COVID-battered Israeli Hotels Stage Modest Revival

Industry is hopeful that August momentum can be sustained during the High Holidays – if the government doesn’t declare another lockdown

Eran Azran
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Hotels in Eilat, 2003
Hotels in Eilat, 2003Credit: Mori Chen
Eran Azran

Israel’s hotels have had to contend with war, terrorism and economic downturns over the years, but the coronavirus was the biggest blow of them all. The three biggest chains – Fattal, Dan Hotels and Isrotel – lost a combined 850 million shekels ($253.5 million) in the first half of the year as revenues plunged 60 percent to 1.9 billion.

The pandemic itself has far from passed: In Israel, the number of new cases reached a new daily record of 3,000 and many hotels remain closed. But the hospitality industry is starting to recover. Air travel restrictions mean there are still no foreign tourists coming to Israel, but in July and August Israeli vacationers went a long way towards filling the vacuum.

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The industry is hopeful that the momentum can be sustained during the High Holidays this month and next – if the government doesn’t declare another lockdown.

“August was a strong month, the best so far this year, especially in Eilat, although less strong in Tel Aviv and Jerusalem,” said Ronen Nissenbaum, CEO of Dan Hotels. “Everyone was on vacation, but they couldn’t fly overseas and there were fewer hotels open than usual and that gave a boost to operations.”

Isrotel CEO Lior Raviv added: “After the lockdown ended, people wanted to go on a vacation, so demand has been strong. Barring any surprises, September will be good, too. It’s quite an achievement.”

The coronavirus blow was made more severe by the fact that it struck just as the industry was enjoying its best run ever. Revenues and profits were soaring as tourist arrivals reached record highs. Even though the Open Skies agreement slashed airfares to Europe, the Israeli economy was prospering so much that Israelis were booking rooms at local hotels in big numbers too.

The stock market took notice. Shares of Fattal Hotels soared 70 percent between the time the company went public in February 2018 and the onset of the pandemic last March. Dan Hotels stock jumped 90 percent in four years and Isrotel’s by 250 percent.

Within a couple of weeks everything turned for the worst. As the government adopted increasingly onerous measures, culminating in a general lockdown, travel of all kinds disappeared. The shares of the big three hotel companies plunged 85 percent in March alone.

Things could have been worse. At Dan Hotels, losses in the first quarter piled up to 120 million shekels, compared with a 65 million shekel profit a year earlier. Revenues at the chain, which counts 17 hotels in Israel and one in India, fell by almost half.

But earnings before interest, taxes, depreciation, amortization, and rent costs, a popular industry metric, was positive to the tune of eight million shekels.

“One of main things that worked in our favor was that we didn’t have to pay municipal taxes,” said Nissenbaum, referring to a government break given to businesses to help them cope with the coronavirus. “Big hotels in Tel Aviv and Jerusalem pay half a million to one million shekels every month, so it had a big impact.”

Three of its hotels – one in Tel Aviv and two in Jerusalem – continue to be leased by the Defense Ministry to house COVID-19 patients in isolation.

Israel’s hotel industry is not out of the woods, as evidenced by its share prices. Fattal is off its lows, but its stock is still down 60 percent this year. Dan and Isrotel have performed better, but their shares are down 12 percent and 14 percent, respectively.

Still, the hotel industry is doing better than anyone could have imagined just a few months ago.

“Our revenues in July and August bear witness to the start of a return to normalcy and our vacation customers in Israel and Europe,” said Shahar Aka, chief financial officer at Fattal, which operates 219 properties in Israel and in Europe.

Herods Tel Aviv Hotel, June 23, 2020
Herods Tel Aviv Hotel, June 23, 2020Credit: Ofer Vaknin

“The biggest news right now is that we’ve succeeded in bringing guests back to our hotels. We’ve seen a nice rise in reservations at our hotels in the 19 countries we operate in,” he said.

In August, revenues at Fattal’s Israeli hotels had recovered to 83 percent of their level the same time in 2019, even though eight of them have yet to reopen. Europe is still lagging behind Israel: Revenues were only 41 percent of those of a year ago and in Britain and Ireland, which only recently lifted their lockdowns, they were just 29 percent.

Occupancy rates at all Fattal hotels averaged about 30 percent in July and rose to 50 percent in August. But, according to Noam Pincu, an analyst at the investment house Psagot, that is not enough for the chain to be profitable.

At Dan Hotels, the occupancy rate was 62 percent in early September. “July saw a major improvement over May, but the numbers are still not close to those of July 2019 because most of our hotels still aren’t open,” said Nissenbaum.

Nor has the recovery in Israel been even across the board. At Fattal, occupancy rates in August averaged 61.5 percent thanks to high rates at its resort hotels in Eilat, the Dead Sea and the Kinneret. At city hotels, in places like Tel Aviv, Jerusalem, Haifa, Herzliya and Netanya, rates were much lower.

Isrotel, which operates 19 hotels with 4,220 rooms, lost 55 million shekels in the first half, compared with a 40 million profit the same time in 2019. Its revenues fell by more than 60 percent. Even so, the chain went ahead with development plans for 11 additional hotels and even opened one in August, the Kedma, in the Negev settlement of Sde Boker.

Isrotel, which is controlled by the Lewis family of Britain, has seen a summer upturn, too, despite the absence of foreign tourists, said: “We expect the third quarter, which is our peak quarter, will be similar to the 2019 third quarter,” he said. “July was decent-plus, August was excellent and September right now is looking good. Not counting Jerusalem and Tel Aviv, occupancy rates were 90 percent.”

Looking ahead, industry executives express cautious optimism at least through the next several weeks as the High Holiday period traditionally brings a surge of bookings. The big threat right now is that the government may impose a general lockdown if the contagion rates don’t start coming down.

“I expect that the High Holy Days will be positive, if there aren’t any [coronavirus] restrictions. Reservations that have already been booked show an improvement, although they are still significantly lower than the same time a year ago,” said Pincu.

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