As Israel continues to formulate its response to the Coronavirus crisis, its government has just announced that all incoming air passengers, regardless of their country of origin, will be forced to maintain a mandatory 14 day quarantine.
All this has got many (and I) thinking:
Will the likely unprecedented reduction in external demand bring down rates in Israel’s hotels, which have been ranked as among the most expensive in the world?
Judging anecdotal reaction and that coming from media sources, the timing of the all-countries quarantine restriction — which comes after a series of escalating measures forcing countries experiencing the worst outbreaks into quarantine — will have several likely effects.
And all of them will put the tourism sector, and all its constituent parts, including hoteliers, under some pressure.
Rapid Changes In Supply and Demand
Bringing my Leaving Certificate Economics* knowledge to bear on this issue, I would therefore predict that:
- Inbound tourism as a whole will be massively effected.
- The newly announced measure means that anybody entering the country will have to commit to quarantining themselves for fourteen days or face prosecution and/or a fine. Obviously, nobody’s idea of a good trip to Israel includes two weeks sequestered in a hotel room / apartment. So virtually anybody that was planning on arriving after the new measure goes into effect, later this week, can be expected to cancel their ticket. So, that’s international tourism down.
- Additionally, and critically, the ban will cause countless Diaspora Jews to cancel their trips to Israel for the upcoming holiday of Pesah (Passover) and cause a huge shortfall in demand during the hotel trade’s busiest booking period. So that’s Jewish tourism down, a major source of lifeblood that perpetuates Israeli hotels’ often scandalous rates. Effect: massively reduced international demand.
- Demand for staycations will increase:
- During the upcoming Jewish festival of Pesach (“Passover”) it is a tradition for Israelis to travel abroad. Many employers count the intermediate days of the religious festival (“Hol HaMoed”) as half days for the purpose of deducing vacation time. And the festival itself is bookmarked by religious festivals. Many therefore, and particularly the secular who feel encumbered by religious restrictions, see it as an ideal opportunity to leave the country for a week. So there is an annual exodus of millions of Israelis travelling abroad at the precise time of year when — highly ironically — Jewish Israelis commemorate the events recounted in the Book of Exodus and their journey from Ancient Egypt towards the Land of Israel.
- Returning Israelis will also be required to self-quarantine. Additionally, Israel has — for over a week — been advising its citizens against all non-essential international travel. Thus, the vast majority of Israelis will also likely stay put. But their appetites to take some time off will likely remain undiminished. The obvious outlet: a staycation.
- During the upcoming Jewish festival of Pesach (“Passover”) it is a tradition for Israelis to travel abroad. Many employers count the intermediate days of the religious festival (“Hol HaMoed”) as half days for the purpose of deducing vacation time. And the festival itself is bookmarked by religious festivals. Many therefore, and particularly the secular who feel encumbered by religious restrictions, see it as an ideal opportunity to leave the country for a week. So there is an annual exodus of millions of Israelis travelling abroad at the precise time of year when — highly ironically — Jewish Israelis commemorate the events recounted in the Book of Exodus and their journey from Ancient Egypt towards the Land of Israel.
(The Leaving Certificate is the Irish equivalent of the SATs).
So, from my reading of the situation (again, informed by high school economics), I see:
- Supply remaining neutral
- International demand drastically decreasing
- Domestic demand increasing
I would imagine, however, that the certain shortfall in international demand will not be made up for by a possible moderately increased domestic demand.
And so I would still predict an overall shortfall in the annual demand for hotel accommodation.
All-things-being-equal I would therefore expect hotel rates to come down.
But … the Industry Wants a Bailout
In response to the unfolding crisis, Amir Hayek, the President of the Israel Hotel Association, painted a dramatic picture and begged the government for aid.
Hayek described the crisis as the worst in the history of the industry, adding that:
“If immediate government aid is not forthcoming, mass layoffs will begin, and the sector will lose over half of its employees”
But what’s a good hint if you’re not going to drop a number?
“The expected closure of Israel’s borders to tourist entries from the entire world will immediately cost the sector NIS 500 million a month in revenue…. it is time for the state to exercise responsibility towards Israel’s economy, not just towards its citizens, and to realize that without immediate oxygen in the form of a NIS 500 million in aid, this patient will die”
Like many, I would not be mourning.
As most visitors to Israel will tell you — and hordes of Israelis — Israel’s hotels are grossly overpriced, service is poor, and their labor costs, given Israel’s minimum wage, are relatively low.
The common perception among the Israeli public — who have taken to flying discount airliners to Europe to enjoy better value for money abroad — is therefore that the hotel industry is among the country’s worst price-gougers and tourist-muggers.
In other words, albeit at a difficult time, is one that few outside the industry are particularly upset by. (But predictably, they are asking the public to pay for their “resuscitation”).
Will Prices Decreases? Testing the Hypothesis
In light of the above quote, I can only conclude that rather than seize upon an opportunity to focus their efforts domestically and try to leverage a potential staycation boom by pricing their accommodation more appropriately, the industry will present a sob story to the government and hope that they keep them afloat — so that they can go back to separating visitors from large chunks of their cash as soon as the virus has been contained.
However, let’s remain optimistic and hope that that’s not the case.
Beginning tomorrow, I will put together a National Hotel Basket (NHB) to assess whether prices are in fact falling.
The basket will look at the price for a budget, a mid-end, and a high-end hotel in Jerusalem and Tel Aviv. Measurements will be taken by searching for two week advanced bookings through the hotels’ websites at two week intervals. And I will report back with the results.
Do you think Israel is headed for an affordable hotel rate revolution? Let me know your thoughts!
