Staycations boost Israeli hotel occupancy as prices soar

The long summer vacation is upon us, and many Israelis are choosing to spend their vacations at home rather than abroad, amid the national mood, reluctance to travel abroad due to the war, and uncertainty about air travel as many foreign airlines cancel flights. There may be no foreign tourists staying in Israeli hotels, but this absence is more than compensated for by domestic tourism, and the hosting of displaced people from the north and south, which the government bears the cost of.

The high demand at home has pushed up hotel prices. Despite the high cost of accommodation, Israeli families feel the need for a break from the constant stresses of the conflict. Sources in the domestic tourism industry indicate a 30% increase in demand for domestic holidays, especially in Eilat and the Dead Sea.

According to the Central Bureau of Statistics, the hotel occupancy rate in Eilat in June (the latest figure available) was 88% compared to 79% in June 2023. The hotel occupancy rate in the Dead Sea was 69% in June compared to 68% last year. The hotel occupancy rate in Tiberias was 71% in June compared to 67% last year, and the hotel occupancy rate in Haifa was 83% compared to 68% last year.

While Israelis have few options for vacationing outside of Israel, some hotels are taking advantage. Hotel prices in Eilat and the Dead Sea have gone up. The average price of a vacation in August this year is significantly higher across all Israeli resorts and destinations — NIS 4,799 compared to NIS 3,748 in the same period last year, says Eshet Tours.

Ophir Tours sees a similar situation, reporting that the average price per night in a hotel in Eilat, for example, has risen by about 30 percent compared to the same period last year. In August, a one-night hotel room at a Red Sea resort for a couple and two children cost NIS 1,933, compared to NIS 1,480 last August.

“When demand is high, prices go up, and so does when supply is low,” says Dr. Shai Ronen, a lecturer in the Department of Tourism and Hotel Management at Kinneret College. “Hotel prices are also affected by the booking date, and usually the price is higher the closer you get to the date. In recent years, computerized booking algorithms have been introduced that set room prices accordingly. In addition, in places like Eilat, the Dead Sea and Tiberias in particular, hotels are routinely booked by groups that fill a large portion of the rooms. This can reach 50% of the room inventory, and this is another factor that reduces supply and causes a natural increase in prices.”

“In the summer, there are dates when prices change, such as the period between July 17 and Tisha B’Av, which are less popular periods, as there are fewer tourist groups and religious people who prefer not to come,” Dr. Ronen adds.

Even earlier in the year, Israeli hotels saw a surge in tourism. The Fattal Group, Israel’s largest hotel group, reported 68% occupancy at its Israeli hotels in the first quarter of 2024, compared to 61% in the same period in 2023. Revenues from its Israeli hotels were NIS 384 million in the first quarter of 2024, compared to NIS 356 million in the first quarter of 2023.

The elephant in the room: displaced people still in hotels

Another factor that could drive up hotel occupancy rates, and possibly prices, is the number of people displaced from the south and north since the war broke out, who are staying in hotels at the government’s expense. Figures from the Ministry of Tourism indicate that there are currently 21,674 displaced people staying in 416 hotels across the country. This includes some 5,000 residents of the south, who were due to leave the hotels on August 15, according to a government decision in June. Does this mean that all the rooms of the displaced from the south have already been vacated? This is not certain at all, as some have filed a petition with the High Court of Justice against the eviction, and the situation is currently uncertain.

In the first half of 2024, there were 10.4 million overnight stays in Israeli hotels, a 53% increase over the first half of last year, with most overnight stays in Israel being by displaced people. The nationwide room occupancy rate was 63%, with some hotels operating in a hybrid format for both displaced people and guests, with each group requiring different levels of service.

Although the government pays lower rates to the displaced than the tourist market – NIS 850-1,000 per night for a couple in a single room, and NIS 1,300-1,500 per night for a couple with two children (including meals), the financial reports of hotel groups show that hosting the displaced is profitable. Isrotel wrote in its financial report: “The profitability of the hotel sector has been affected by the compensation paid by the state to guests from the borders of the conflict and the adjustments made in the hotels to staff, food and beverages, such as closing points of sale and reducing the number of employees, etc.” Isrotel added that despite the war and the uncertainty it creates in the hotel industry, there is a high demand for domestic tourism and the corresponding revenues.

“Big hotels also benefited.”

Have the hotels made real profits from the displaced people who have been staying there for more than ten months? According to Professor Alon Gelbman, head of the international master’s program at the Kinneret Academic College, the answer is definitely yes. “Those who earned the least are mainly the big hotels, which also had a guaranteed income,” he told Globes. “We are talking about high occupancy rates in hotels that take care of the displaced, and even if the price is lower than the average they are used to, thanks to the high occupancy rates, they can maintain a profit.”

The simpler and less luxurious a hotel offers, the more likely it is to make a profit, he adds. Good management can be crucial at the moment, he explains. “When hotels started hosting refugees, some knew how to adapt quickly and others took longer to adapt. The faster a hotel can market its services and adapt its product to the new reality, the more profitable it will be.”

The fact that housing the displaced, at least initially, was accompanied by a great deal of assistance from outside sources, including donations, affected the hotel’s ability to make a profit.

“In the cases where we see no profitability in the first quarter, it’s been in situations where there has been a decline in the hotel’s other profit centers like restaurants, events and shops, and this is more significant in luxury hotels,” says Professor Gelbman. “The simpler the service, the more profitability is maintained. In Dan Hotels, for example, which also makes money from additional income other than rooms, there is a bigger decline.”

This article was published in Globes, Israeli Business News – en.globes.co.il – on August 16, 2024.

© Copyright Globes Publisher Itonut (1983) Ltd., 2024.