Eighteen-year-old French college student Alexandre Brunet was looking forward to his first visit to the Holy Land this August. But after hostilities broke out between Israel and Lebanon five weeks ago, his parents canceled the trip. Same goes for Pamela David, executive director of the San Francisco-based Walter and Elise Haas Fund. She was all set to attend a series of August meetings in Jerusalem, but the events were canceled and she's staying home.
With hundreds of Hezbollah rockets continuing to fall daily on northern Israel, such stories are piling up. And the impact on Israel's $3 billion tourism industry is mounting.
WRITING OFF 2006. The government had been predicting 2.4 million visitors this year, a 25% increase over 2005. Now travel agencies catering to foreign guests are already writing off 2006. "Preliminary figures show that tourist arrivals were down by 30% in the first two weeks of the fighting," says Limor Banai, spokeswoman for Israel's Tourism Ministry.
Nobody is feeling the effects of the debacle more acutely than El Al Israel Airlines, the country's national carrier, which was privatized two years ago. Having made a smart recovery from money-loser to highly profitable airline, El Al was expecting a banner year in 2006. But the picture has completely changed.
On July 19 El Al issued a warning saying the company expects to report a loss for 2006. It attributed the about-face to the security situation and high fuel prices. "El Al was already facing stiffer competition than in the past, as well as sky-high jet fuel prices," says Yuval Zaira, an airline industry analyst at Israel Brokerage Investments, a Tel Aviv-based investment bank. "On top of that, it has been hard hit by the ongoing fighting on Israel's northern border." Zaira predicts El Al will lose about $20 million this year.
REVERSAL FOR EL AL. It's a bitter turn of events for the airline. Last year, El Al posted a record $64.1 million net profit on revenues of $1.62 billion. It was the Israeli carrier's third year in a row in the black. Its shares are now among the hardest hit on the Tel Aviv stock market, down by 40% since early June, with much of the decline since the fighting began on July 12. The rest of the exchange has largely returned to its early July levels after a sharp decline when the fighting began.
El Al won't comment beyond its July 19 statement. But its competitors are more open about the economic impact of the war. "Our load factor at this time of year is traditionally close to 100%, but our planes are now about 75% full," says Zohar Endelman, president and chief executive officer of Israir Group, the country's second largest carrier, which also operates several travel agencies. Israir began competing with El Al earlier this year on fights to New York.
So far foreign carriers haven't cut back flights to Israel, though several have switched to smaller planes. One of the few exceptions is Continental Airlines (CAL). "Traffic on our incoming flights is down, but outgoing has not been affected so far," says Avi Friedman, director of Continental Airlines Israel. The Houston-based carrier operates two daily flights from Tel Aviv to Newark.
HOTELS AND AGENCIES. For the rest of the travel industry, signs are bleak. "We were expecting to have our best August in five years," says Haim Shkedi, general manager of Jerusalem's King David Hotel. Like others in Jerusalem, it was hard hit in recent years by effects on tourists of a wave of Palestinian suicide bombings, but nascent peace had brightened the picture. Now occupancy levels at the hotel, which were on track for 90% this month, have fallen to 70%.
Local travel agencies dealing with incoming tourists say the situation is far grimmer. "We're now hoping for 800 tourists during August, or less than a third of what we were expecting," says Amnon Ben-David, managing director of Tel Aviv-based Eshet Incoming, which specializes in foreign tourists visiting Israel. Those who are coming—primarily Jews with strong family ties—stay in Tel Aviv, Jerusalem, and in the south of Israel, which have so far been free of rocket attacks.
"Sixty percent of our fall bookings have already canceled and the rest are taking a wait-and-see attitude," says Gal Doron, managing director, Gal Conventions and Tourism, a Jerusalem-based agency that caters to German-speaking Christian pilgrims.
Travel agencies also are reporting a drop in the number of Israelis traveling abroad during what is traditionally the high season of foreign vacations. Industry officials estimate that outbound travel by Israelis is down by around 30%.
All told, the hit to tourism could lop nearly half a percentage point off of gross domestic product growth this year, the Bank of Israel said in a report last week. But for El Al and the rest of Israel's travel industry, the decline is likely to be far worse. And even if a cease-fire is achieved within weeks, recovery will take months, at best, and is likely to be gradual. On the bottom line, bombs are striking far deeper than just Israel's northern border.
Sandler is a correspondent for BusinessWeek in Jerusalem
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