First look at the impact of war in Israel

The emerging war in Israel will no doubt have a great impact on the hotel business in the country and region.

Most major carriers have stopped flying to Tel Aviv, even as many pilgrim groups are currently there to celebrate the feast of Tabernacles.

“The problem hotels around Israel face is the extended stays of many tourists, who will pay extra for hotels,” Joseph Fischer, former hotelier and current owner of Vision Hospitality & Travel, Tel Aviv, told Hotel Investment Today. “For hotels to find enough staff (300,000 Israelis have been recruited for active reserve service in the IDF); to have the hotels ready to take tens of thousands of evacuees from the Kibbutzim towns and cities surrounding Gaza; to have good food chain supply during the war which is expected to take weeks isn’t going to be easy.”

Fischer added that outbound travel from Israel to regional destinations will stop completely, noting how Israeli tourists were attacked on Sunday in Alexandria, Egypt. “The government issued a warning, calling all Israelis visiting Arab and Muslim countries to leave those countries immediately,” he added.

For hotels to find enough staff (300,000 Israelis have been recruited active reserve service in the IDF); to have the hotels ready to take tens of thousands of evacuees from the Kibbutzim towns and cities surrounding Gaza; to have good food chain supply during the war which is expected to take weeks isn’t going to be easy.

Joseph Fischer

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Ronen Nissenbaum, London-based CEO for Israel’s Fattal Hotels in Europe, said, “I know how devastating these past 48 hours have been on [Israel], the businesses and obviously the hotel industry. Right now, the focus needs to be about securing the borders, both south and north. Then the next phase will kick in and no one knows how long that will take.”

On Monday, Truist Securities put out a note on the situation, suggesting “risks of war/global conflict and economic impact may be a modest headwind to global leisure and business travel but regionally, public lodging/cruise exposure to the Middle East is minor and like for Russia-Ukraine impact to European travel we view a Gaza-Israel conflict for now as geographically limited.”

Truist added that at the moment, it sees the biggest impact to earnings, obviously subject to change going forward, coming from higher fuel prices for the cruise companies.

Analyst C. Patrick Scholes wrote that Israel itself is likely 1% or less of lodging C-Corp EBITDA , while exposure and potential lost demand to/from the greater Middle East and North Africa could be at most a few percent of EBITDA.

Scholes said the bigger exposure regionally includes high ADR-Dubai and potentially Mecca/Hajj demand next June in case there is lost travel to/from the eastern part of the Gulf. Within North Africa, he said Truist assumes Egypt has a negative demand impact both to Cairo and the resorts to the southeast (the latter has been popular with Israelis and Europeans).

In Saudi Arabia, Truist is assuming for now that hotels not under construction may have delayed construction starts and hotels under construction may have delayed openings if the conflict is long-lasting.

Another silver lining noted by Scholes is that entourages of wealthy Middle Easterners can have long lengths-of-stay trips for shopping and leisure in major non-Gulf gateway markets worldwide, including New York City, Beverly Hills, Miami, London and Paris.

Looking at tourism in Israel beyond the war, Fischer said, “There’s only one Holy Land in the world, only one Dead Sea, only one Sea of Galilee. Tourism will return as soon as the war will end. I witnessed it back in 1982 after the Lebanon war, after the first and second Iraq wars, after the Intifada terror years, and after the second Lebanon war.”