Israel's Travel Agencies Look to Reinvent Themselves as Half of All Businesses Forecast to Go Under

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A sign at a newly closed Issta Holidays branch is taken down, June 2020.
A sign at a newly closed Issta Holidays branch is taken down, June 2020.Credit: Ofer Vaknin

Half of Israel’s 450 travel agencies are likely to close by the time the coronavirus pandemic passes – either because they’ve gone bankrupt or merged with other agencies, say industry sources. Small and family-owned agencies are nearly gone. Large agencies, which were financially stable before the crisis, will survive, but will need to change focus – moving online, depending less on business travel, creating added value for customers and expanding into industries that aren’t related to tourism.

The industry was struggling even before the pandemic began. Many travelers had started reserving plane tickets and hotel rooms directly from airlines and hotels. Low-cost airlines and home-sharing services like Airbnb cut into revenues, too. The busy pace of 2019 – 4.5 million incoming tourists, and 9.2 million Israeli trips abroad – kept many agencies afloat, but the coronavirus crisis dealt them a severe blow from which many may not recover.

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Israel banned the entry of foreigners nearly entirely in March, and that month saw 87,200 foreign entrances, versus 456,000 in March 2019. April had only 600 foreign entrances via air, versus 428,000 in April 2019 – that month is typically busy due to the Passover holiday. Between April and October there were 72,000 foreign entrances, compared to 2.9 million for those months in 2019.

The travel agencies put 70–90% of their staff on unpaid leave when the crisis began, and also laid off many workers. In addition, the Israel Association of Travel Agencies and Consultants and the International Air Transport Association wound up in conflict due to the latter’s refusal to commit to refund passengers for tickets on flights that were canceled. Foreign airlines have not returned an estimated 525 million shekels ($162 million) for flights booked to and from Israel, while El Al has not returned 1.1 billion shekels ($339 million) for canceled tickets.

Customers complained to the travel agencies, of course. In the wake of legal action in Israel and abroad, many of the airlines have refunded some money, but not all of the airlines, and not all the money owed.

“The situation is bad; most of the agencies are closed or are working at limited capacity, and most of the workers are on leave,” said Ronen Carasso, CEO of Issta Holidays. “Now there’s some activity regarding Dubai, but with all due respect, one destination can’t keep an entire office going. Everyone’s waiting for a change but we don’t know when. March? June? Most people expect the recovery will come in the second half of 2021, but it won’t bring back the activity we saw in 2019.”

Kobi Karni, chairman of the Israel Association of Travel Agencies and Consultants, is not optimistic. “The industry has been nearly paralyzed,” he says. “Many agencies have only overhead, because they need to return money for vacations that were canceled but have nearly no revenue,” he says. “The people traveling to Dubai or Greece aren’t enough to keep us going.”

Karni says the country isn’t doing enough to help keep the agencies afloat. “The government compensation is partial and doesn’t cover the actual damage,” he says. Companies’ ongoing expenses are at least 20% of what they are in usual times, and these can’t be cut back even when the company has no business, he explains. “The companies maintain staff to keep their website running, refund money and handle accounting,” he says.

The larger agencies have to keep going so that they have business when the crisis ends, he says, such as planning future tours and reserving hotels, says Karni.

“The large companies, with more than 400 million shekels in annual revenue, received no compensation,” he says. “Some will survive, others will need to make decisions such as whether to merge or expand. I expect it will take at least two to three years until things are back to normal. Until then, we’ll see a lot of changes in the sector.”

Women walk along the shore at a beach by the Burj al-Arab hotel in Dubai on November 24, 2020.Credit: GIUSEPPE CACACE / AFP

How will travel agencies look on the day after the crisis? Ephraim Kramer, owner of Eshet Tours, says that he expects to survive but that his competitors are likely to struggle.

“I expect at least half of all small family agencies with three to five employees to close,” he says. “Also half of the medium-sized agencies will close or merge. Even now many agencies have reported that they’re in serious trouble or in bankruptcy,” he says.

As for the large agencies, it depends on their financial situation prior to the crisis. “Eshet Tours had no loans when the crisis began, so I’m sure we’ll get out of this, but there are companies deep in debt with problematic finances.”

Even those who remain in operation will have to change their business model, he says. They’ll have to halve the manpower, because the industry is quickly going digital, he says, and they’ll also limit their office space because fewer customers actually want to show up in order to receive service.

Carasso agrees, noting that even people over age 50 who up until a few months ago would do business in person or by phone have now switched to coordinating their travel online.

“The future belongs to those who can maintain a good digital presence,” says Carasso. Furthermore, many travel agencies relied on corporate travel, and that’s going to be much more limited now. “Businesspeople have realized that Zoom is a good solution so they’ll be flying less. Also large trips organized by unions are not likely to come back anytime soon. Likewise for groups of elderly travelers,” he says.

The agencies that survive will be the ones that create added value for their customers, and don’t serve only as intermediaries, Carasso states. “This means high-level customer service, since many customers want a personal address, and vacation packages with attractions and tours. We’ll need to find destinations and run them ourselves, like we did with the Greek destinations of Santorini, Skiathos and Mykanos,” he explains. “These are destinations that Israelis didn’t often visit until we started running charter flights there.”

Agencies will have to differentiate themselves from their competition, he says. For example, “Issta bought three hotels in Cyprus and Portugal before the crisis, so it will be easier for us to offer flight-hotel deals,” he says.

Some agencies have decided that the best way to survive is to expand into industries other than tourism. Issta, for example, has increased its real estate investments. “We believe in tourism, but even a decade ago we decided to deepen our real estate investments,” says Carasso. “We have hotels in Israel and abroad, we have logistics centers in Israel, and we’re even building homes under the Mehir Lemishtaken subsidized housing project. Diversifying our risk is helping us get through the crisis and seems to have been a success,” he says.

Yaakov Amsalem, owner of Amsalem Tours and Travel, says his company has expanded into agriculture. “We put 500 out of 550 workers on unpaid leave due to the pandemic,” he says. “Since then we’ve had a little more activity, but in November we were still at 15% of where we were in November 2019, so we decided to expand into other industries, such as cannabis,” he says.

“We built an agricultural hothouse,” says Amsalem. “We’ve also gotten into cargo shipping via sea and air. We’ve gone into internet retail – we’ve opened a commerce arena that offers not only flights, but cucumbers. That’s how we’ve kept 170 workers [employed] – some are engaged in fields that aren’t directly connected to tourism. The coronavirus taught us that we can’t have all our eggs in one basket.

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