Israeli Hotels Struggle to Pivot to Local Tourists

With most foreign destinations closed and restrictions on children's travel abroad, demand for hotels from domestic Israeli tourists should be off the charts, but it's not

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The Fauzi Azar guesthouse by Abraham Hostels in Nazareth
The Fauzi Azar guesthouse by Abraham Hostels in NazarethCredit: Abraham Hostels

In the two months since Israel permitted hotels to reopen under a new set of coronavirus restrictions, some 250 out of the Israel Hotels Association’s 420 member hotels have reopened. Some 40% of hotels are standing empty, apparently because their executives believe that opening isn’t financially worthwhile.

It would have been reasonable to presume that the demand for hotels from domestic Israeli tourists would be off the charts. Most foreign destinations are closed, children traveling abroad are required to quarantine upon returning to Israel, and Israelis are desperate for vacation after a year of lockdowns and restrictions.

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But hotels are facing several challenges. First off, entrance is currently limited to Israelis who are vaccinated or have recovered from the coronavirus. In addition, children under age 16 are required to present a negative virus test 72 hours before arrival in order to enter, increasing the amount of planning a hotel stay necessitates. However, that still leaves a full 5.5 million Israelis who are permitted to visit hotels.

The real problem is elsewhere, apparently. Foreign tourists are not permitted to enter the country, except in unusual circumstances, and there’s no expectation that this is going to change anytime soon.

As of 2019, some 47% of hotels in Israel catered to foreign tourists. A significant number of hotels that didn’t market themselves to Israeli tourists, or aren’t in areas that Israeli tourists consider attractive, apparently don’t believe it’s worthwhile to reopen at the moment. Hotels in popular vacation areas such as Eilat, the Dead Sea and even Tiberias – on Lake Kinneret – are successfully filling their rooms with Israeli tourists, but hotels in urban areas such as Jerusalem and Tel Aviv aren’t doing so well.

According to the Israel Hotel Association data from before the Passover holiday, in Tel Aviv only 51 out of the 113 member hotels were open; in West Jerusalem, only half of the organization’s 56 hotels were open, and an even smaller percentage were open in East Jerusalem; in Haifa 16 out of 29 hotels were open; and in Tiberias 19 out of 30 hotels were open.

The situation was particularly bad in Nazareth, whose tourism industry is nearly entirely based on foreign tourists. In 2019, Israelis accounted for only 16% of hotel stays in the city. “We tried to market to the Israeli market, but that’s primarily one-night stays, and it’s not something we can base our business on,” said Marwan Edward Issa, CEO of the Legacy Nazareth Hotel. “We need to fill the rest of the week, and even if we’ve gotten past the first barrier of Nazareth being an Arab city, there’s another barrier because the hotel isn’t kosher and doesn’t have a pool.”

An Olive Hotel in Tel AvivCredit: Olive Hotels chain

“Our advantage is our central location across from the Church of the Annunciation, but that’s not what will bring Israeli tourists. Even if I make the hotel kosher now, I’m not sure that that will change the picture, and it’s a big gamble. The only month when we have a significant number of Israeli customers is December, due to Christmas,” he said.

Tel Aviv, with 8,700 hotel rooms and thousands of short-term rental apartments as of 2019, is popular among foreign tourists but is struggling to attract locals. Israelis accounted for 23% of hotel stays before the pandemic, and the remainder were foreign tourists there for business or pleasure. Now half of all the city’s hotels are closed, and many of those open are available primarily for long-term room rentals. Those open for their regular hotel business are trying to figure out how to draw Israelis.

For example, Roy Avidor, who manages two Tel Aviv hotels – the BY14, with 110 rooms, and the Savoy Hotel, with 55 rooms – decided to open only the smaller of the two due to financial considerations. “Savoy is close to the shore and can attract Israelis, and I can manage it on my own without additional managers and with reduced manpower. We’re full on weekends, but in the middle of the week it’s really empty, so I’m not profiting but I’m also not losing, so it’s worthwhile for me to open in order for me to preserve my manpower,” he said.

In order to draw Israelis, Avidor says he’s cut prices by 30% compared to the pre-pandemic period.

Israel’s largest hotel chain, Fattal, hasn’t opened one-quarter of its 40 or so hotels. The chain is considering reopening its hotels that cater to business tourists in Tel Aviv’s Ramat Hahayal neighborhood and in Rehovot in May, said Anat Aharon, Fattal’s VP-marketing. “We’re opening with great caution,” she said. “In Tel Aviv, for instance, we didn’t open all our hotels, and we directed demand to those that are open.”

Ofer Hayut, CEO of the Olive and Rimonim hotel chains, isn’t optimistic. “It’s true that only two out of our 15 hotels are closed, but I might close more hotels next week, because occupancy in April and May is very low,” he admitted. “Incoming tourism has disappeared and it doesn’t seem like it’ll be returning over the summer,” he said. “Most hotels in Israel depended on ‘padding’ from foreign tourists, even if it only accounted for 20-30% of business.”

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