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Leza L Olson  09/05/2006 01:06:56 PM  From  DB/Inbox:  Leza L Olson

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C O N F I D E N T I A L        TEL AVIV 03503

SIPDIS
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    ACTION: ECON
    INFO:   CONS RES ADM IPSC SCI IMO POL DCM AMB AID FCS
            PD

DISSEMINATION: ECON
CHARGE: PROG

APPROVED: ECON:WWEINSTEIN
DRAFTED: ECON:AABELL
CLEARED: ECON:JWITOW

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OO RUEHC RUEHXK RHEHNSC RUEATRS
DE RUEHTV #3503/01 2441209
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O 011209Z SEP 06
FM AMEMBASSY TEL AVIV
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6099
INFO RUEHXK/ARAB ISRAELI COLLECTIVE IMMEDIATE
RHEHNSC/NSC WASHDC IMMEDIATE
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE

C O N F I D E N T I A L SECTION 01 OF 03 TEL AVIV 003503 
 
SIPDIS 
 
STATE FOR NEA/IPA; NSC FOR WATERS; TREASURY FOR HIRSON 
 
E.O. 12958: DECL: 08/31/2016 
TAGS: ECON ETRD EIND IS
SUBJECT: ISRAELI TOURISM INDUSTRY A CASUALTY OF WAR 
 
Classified By: Economic Counselor William Weinstein for reasons 1.4(b) 
and (d). 
 
------- 
SUMMARY 
------- 
 
¶1. (C) Data from the first six months of 2006 indicates that 
Israel was on pace to welcome 2.6 million visitors this year, 
the most since 2000.  Not surprisingly, the conflict with 
Hizballah has resulted in a dramatic decline in the number of 
foreign tourists.  The Central Bureau of Statistics (CBS) 
reported that 25.2 per cent fewer tourists visited Israel in 
July 2006 than in July 2005.  Industry experts fear that the 
conflict will also result in a 50 per cent drop in foreign 
tourism from pre-war expectations for the remainder of 2006. 
According to the Bank of Israel (BOI), such a decline will 
result in a GDP reduction of 0.4 per cent.  The Ministry of 
Finance (MOF) recently announced a plan to compensate the 
tourism industry for losses due to the war.  Hotel owners 
will receive 68 per cent of the difference between their 
revenues for the months of July, August and September in 2005 
and the same period in 2006.  Additionally, the MOF will 
allocate NIS 35 million to the Tourism Ministry in September 
for an overseas marketing campaign.  Industry leaders are 
optimistic that domestic tourism to the north will quickly 
recover, but fear that foreign tourism will suffer well into 
¶2007.  End summary. 
 
--------------------------------- 
THE COMEBACK YEAR THAT ALMOST WAS 
--------------------------------- 
 
¶2. (SBU) Foreign tourism to Israel consistently grew each 
year following the Oslo Accords, peaking at 2.7 million 
visitors in 2000.  By 2002, tourism had dropped to a 
twenty-year low of 860,000 due to the violence associated 
with the Second Intifada.  From 2004 to 2005, the number of 
foreign tourists increased by 27 per cent, from 1.5 million 
to 1.9 million.  Data over the first six months of 2006 
indicated that this significant upward trend was continuing, 
as Israel was on pace to welcome 2.6 million visitors this 
year. 
 
¶3. (SBU) In 2005, the Israeli tourism industry employed 
approximately 75,000 workers and generated USD 2.6 billion in 
revenue -) about two per cent of GDP.  Tourism employment 
was expected to increase to 100,000 by the end of 2006. 
(Comment: Although a small fraction of GDP, growth in the 
tourism industry has a significant impact among Israeli 
workers at the lower-end of the socio-economic spectrum who 
predominate in the services sector.  End comment.) 
 
------------------------------ 
INDICATORS OF THE WAR'S IMPACT 
------------------------------ 
 
¶4. (SBU) Not surprisingly, the onset of the war in Lebanon 
resulted in a dramatic decline in the number of foreign 
tourists to Israel.  According to the Central Bureau of 
Statistics (CBS), 25.2 per cent fewer tourists visited Israel 
in July 2006 than in July 2005.  This figure, however, does 
not reflect the true impact of the decline, as tourism in the 
first six months of 2006 had been up 24.5 per cent from 2005. 
 Thus, not only did the July 2006 tourism intake fall 24.5 
per cent below expectations, but it also dropped 25.2 per 
cent below the July 2005 total.  Overall, about 1.5 million 
foreign tourists had been expected to visit Israel between 
July and December before the outbreak of hostilities. 
Industry experts fear that the conflict will result in a 50 
per cent drop in foreign tourism from pre-war expectations 
for the remainder of 2006. 
 
¶5. (SBU) The Israel Airports Authority reported that total 
international arrivals at Ben Gurion Airport dropped by 8.2 
per cent in July 2006, as compared with July 2005.  During 
the first half of 2006, commercial airlines had actually 
increased the number of flights to Israel by 7.8 per cent 
over the comparable period in 2005 in order to meet increased 
demand.  Consequently, the sudden drop in incoming visitors 
with no attendant reduction in flights has resulted in many 
unsold seats. 
 
¶6. (SBU) The largest single source country of tourists to 
Israel has been the United States, with 457,000 in 2005. 
Europe collectively accounted for about one million.  Ari 
Sommer, Israel's tourism commissioner for North and South 
America, estimated that approximately 35 per cent of would-be 
U.S. tourists had canceled their planned trips to Israel in 
the month following the start of the war. 
 
¶7. (C) Foreign tourism in August was buttressed by relatively 
affluent French Jews, most of whom kept to their vacation 
plans as a show of solidarity with Israel.  The CEO of the 
Dan Hotel chain estimated that only 15 per cent of potential 
French tourists had canceled their reservations across Israel 
as a result of the war.  A spokesperson for the Tel Aviv 
Hilton reported an August occupancy rate of 80 per cent, 
compared with 100 per cent last year, with half of all 
occupants coming from France.  The Tel Aviv Crown Plaza 
reported no conflict-related cancellations in August, with 87 
per cent French occupancy.  French tourists told Econoff that 
the price of a room at the five-star Tel Aviv Hilton had 
increased to USD 350 this year, as compared with USD 250 last 
summer.  They complained that Israeli hoteliers had rewarded 
their loyalty with artificially inflated prices. 
 
-------------------------- 
ECONOMIC DAMAGE ASSESSMENT 
-------------------------- 
 
¶8. (SBU) At the end of July, the Galilee Tourism Forum 
claimed that tourism industries in northern Israel had lost 
NIS 65 million (USD 14.7 million), and predicted that total 
losses for July will amount to NIS 123 million (USD 27.8 
million), or roughly USD 2 million per day of fighting. 
Jossef Engel, a longtime advisor to Vice Premier Shimon 
Peres, told Econoff that northern hoteliers and 
bed-and-breakfast owners earn 60 per cent of their total 
year's revenue in the month of August, making the timing of 
the war particularly bad.  Ami Etgar, head of the Israel 
Incoming Tourism Association, claimed that Israel has lost 
$150 million in tourism revenues since the war began on July 
¶12. 
 
¶9. (SBU) In a July 25 business supplement to the Maariv 
newspaper, Former MOF Director General and CEO of Economic 
Models Consulting Yakov Sheinin predicted that the war would 
result in a 50 per cent decrease in foreign tourism and a GDP 
contraction of 0.4 to 0.5 per cent.  Sheinin further assessed 
that foreign tourism would not return to pre-war expectations 
until well into 2007.  An August 7 BOI survey of the first 
half of 2006, including an early assessment of the damage 
caused by hostilities in Lebanon, generally agreed with 
Sheinin's prediction.  According to the BOI, a 50 per cent 
decline in incoming tourism during the third and fourth 
quarters of 2006 will result in a GDP reduction of 0.4 per 
cent. 
 
¶10. (SBU) On August 29, Yediot Ahronoth newspaper reported 
that the Israel Hotel Association (IHA) had revised downward 
its projected tourism sector revenues for 2006 from USD 3.2 
billion to USD 2.1 billion as a result of the war.  The IHA 
further projected that employment in the tourism sector would 
drop from 100,000 to 66,000 jobs by the end of 2006.  The 
President of the IHA, Eli Gonen, claimed that "between 80-90% 
of winter tourism groups have canceled their plans and we 
expect that there will be a catastrophe here (by the 
winter)."  Gonen called on the GOI for an immediate injection 
of government funds for overseas marketing in order to stave 
off the "catastrophe."  With such a campaign, the IHA 
believes Israel could still attract 2.1 million foreign 
visitors next year. 
 
----------------------------- 
GOI's PLAN TO SOFTEN THE BLOW 
----------------------------- 
 
¶11. (SBU) On August 3, the Ministry of Finance announced a 
plan to compensate the tourism industry for losses due to the 
war.  Hotel owners will receive 68 per cent of the difference 
between their revenues for the months of July, August and 
September in 2005 and the same period in 2006.  Guesthouses 
in the north will receive an as-of-yet undetermined amount of 
assistance for the month following the end of the fighting. 
Finance Minister (and former Tourism Minister) Avraham 
Hirchson, of the Kadima party, publicly called on Israelis to 
vacation in the north as a way of supporting their countrymen 
who bore the brunt of Hizballah's rocket attacks. 
 
¶12. (SBU) Answering the industry's plea, Hirchson and Tourism 
Minister Isaac Herzog (Labor) agreed on August 30 to an 
immediate allocation of NIS 35 million to be used to promote 
Israel as a tourist destination to overseas markets.  Herzog 
also asked for an additional NIS 65 million to use in the 
remainder of 2006, with a parallel budget of NIS 100 million 
for marketing in 2007.  According to the business magazine, 
"The Marker," Herzog stated that the goal of the campaign is 
to help minimize short-term damage while maintaining Israel's 
long-term image as a viable tourist destination.  The Tourism 
Ministry has also encouraged hotels and guesthouses to offer 
American tourists the chance to redeem canceled reservations 
until June 2007. 
 
---------------- 
A LOOK INTO 2007 
---------------- 
 
¶13. (SBU) Well before the conflict, industry leaders had 
complained to Herzog about the difficulty in attracting 
foreign tourists due to the rigorous security 
checks/interrogations at Ben Gurion Airport.  Herzog 
responded then that he would work with security officials to 
streamline the process and make visitors feel more welcome 
upon their arrival.  The recent hostilities and continuing 
heightened state of alert make it less likely that Herzog 
will succeed in influencing Israeli security procedures. 
 
¶14. (SBU) In late June, before the war, Pope Benedict XVI 
announced that he would visit Israel in 2007.  The tourism 
industry hopes his visit will further stimulate the recovery 
of foreign tourism to Israel.  In 2000, the visit of 
then-Pope John Paul II attracted nearly 800,000 Christian 
pilgrims to the country. 
 
------- 
COMMENT 
------- 
 
¶15. (C) The long-term economic fallout of the war on the 
tourism industry remains to be seen.  For hoteliers and 
bed-and-breakfast owners in the north, the war arrived at the 
worst possible time -- during the peak tourism season.  While 
an important site for Christian pilgrims, northern Israel is 
primarily a destination for domestic tourism.  The Israeli 
public will likely respond to Hirchson's call to vacation in 
the north over the final weekend of summer and during the 
Jewish High Holy Days in the fall. 
 
¶16. (C) The Hizballah rocket attacks did not reach far enough 
south to affect the most popular destinations for foreign 
tourists in Israel: Jerusalem, the Dead Sea, Tel Aviv, and 
Eilat.  Still, media coverage of the war and repeated 
Hizballah threats to strike Tel Aviv clearly kept many 
foreign tourists away.  However, many northern residents, 
seeking respite from the Katyusha threat, took vacations in 
Eilat, Jerusalem and Tel Aviv during the war.  Although not 
publicly reported, these domestic tourists/refugees offset to 
some degree the tourism industry losses in central and 
southern Israel due to the drop in foreign tourism.  As is 
the case with other industries, tourism industry leaders are 
projecting worst-case scenarios and likely exaggerating 
losses in the hopes of receiving greater compensation from 
the government.  End comment. 
 
********************************************* ******************** 
Visit Embassy Tel Aviv's Classified Website: 
http://www.state.sgov.gov/p/nea/telaviv 
 
You can also access this site through the State Department's 
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********************************************* ******************** 
JONES