Hotel prices in Israel are twice as expensive as in Europe, and there is more bad news

Vacationing in hotels in Israel is expected to become more expensive in the coming year compared to the current price level, which is already high, due to a significant decrease in the pace of building new hotel rooms – this is what David Fatal, the controlling owner and CEO of the largest hotel chain in Israel, Fatal Holdings, estimated this week.

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Fatal convened institutional investors at the Harrods Hotel in Tel Aviv to present the company’s financial data summarizing the first nine months of the year. These indicated a return to the level of income that preceded the outbreak of the Corona epidemic, which led to a severe crisis in the industry.

The bad news from the point of view of the public, if his words are to be believed, is that those who want to vacation in hotels in the coming year – will have to part with larger sums.

Botanica Hotel, Haifa / Photo: Company presentation

According to data published by Fatal, the average daily income from a room in the chain’s hotel in Israel was NIS 1,146 as of the beginning of 2022, a double-digit increase of 15% compared to the income from a room on the eve of the plague in 2019.

The figure is even more painful for the pocket of the Israeli vacationers when you look at it in relation to the chain’s income from hotel rooms it owns in Europe. The data shows that a room in Israel yields on average 129% more for the chain than a room in Europe (which yielded NIS 500) and is 102% more expensive compared to a hotel room in Great Britain and Ireland and 64% compared to a hotel room in Cyprus.

An examination of the results of the three largest hotel chains in Israel – Fatal, Dan Hotels and Sherotel – shows that in the first nine months of 2022, they recorded a measured increase of 3% in revenue compared to the same period in 2019. These amounted to a total of NIS 6.4 billion. The trend of revenue recovery came together with a 10% increase in operating profit between the periods, to almost a billion shekels – a figure attributed mainly to the increase in room prices compared to previous years.

''The Dilly'' hotel, London / photo: company presentation

”The Dilly” hotel, London / photo: company presentation

Fatal explained why, in his estimation, the surge in prices is expected to continue: “In the last two and a half years, we have built almost no new hotels in Israel and in the world, so that an average growth rate (additional hotel rooms) of 3%-4% per year, we have dropped to a growth rate of only 0.5%. This allows us Raising prices wherever we operate, simply because the supply is small and the demand is only increasing.”

Fatal added and noted on the subject that following the epidemic there has been an intergenerational cultural change in the hotel world. “Tourism is no longer a luxury as it was in the past, it is a basic product today. In the past, previous generations traveled less and saved more to buy an apartment for their children. Today there is a generation of people who want experiences and they do not see a vacation as a luxury but a necessity. They work for three months and must ventilate It’s a change in perception. People want to spend, and in Israel they also spend what they don’t have.”

According to him, another factor that will push up the prices of hotel rooms is the construction costs. “The cost of building new hotels is climbing, and this is expected to increase the value of our properties.” He estimates that when interest rates drop in the world, “the value of our assets will skyrocket.”

The results are already reflected in the income recorded by the Fatal chain from the average price of a hotel room in 2022. In all its territories, a jump was recorded compared to 2019. As mentioned, the data also shows a picture that may upset the local vacationers – the cost of a hotel room in Israel is more than twice as expensive as a room in Europe, Great Britain or Greece and Cyprus.

Isrotel Dead Sea / Photo: Shlomi Yosef

Isrotel Dead Sea / Photo: Shlomi Yosef

“People started vacationing within their countries”

Another change that has taken place in the tourism industry, which Fattal says plays in favor of the chain, which operates mainly in Europe, is that “central cities in Europe have become vacation destinations for local tourism. The English, who used to travel to distant islands, began to spend the weekends in the major cities of the kingdom. This also happened In Holland and Spain. People started vacationing on weekends in their own country. We have a lot of city hotels that have also turned into vacation spots in the low season.”

In general, Fatal points out that the tourism industry in the world is on a growth trend. “This is the fastest growing branch among the different branches of the economy, also at the global level. There is a new trend today called B-Leisure, which means business and pleasure. We often come across company employees who come to work from their vacation.

“Some employers allow employees, for example in the month of August, to go on vacation with their families, but to work from the hotel at the same time, and this will not count as days off for them. This is a new world view. In addition, there is also growing demand from the ‘Baby Boomers’ generation. He crossed You are 60 years old, and in this decade of life (60 to 70) you spend the most money.

“Our strategy is to strengthen the activity in the demand areas, especially in the countries we operate in and know well. We will continue to improve our hotels, while strengthening the group’s brands, and we will open luxury hotels, boutique hotels and resort hotels.”

Fatal owns 253 hotels, some of which are under construction and most (214) are active. It has 61 hotels in Israel, and the rest in Europe, mainly in Germany and Great Britain as well as in Spain, the Netherlands, Greece and Cyprus.

The chain’s occupancy rates reached their best level in 2022 since the outbreak of the Corona virus, but they are still slightly lower than the levels of 2019 on the eve of the epidemic. However, Fattal adds that due to the fact that hosting prices have risen, revenues have reached record levels. In November, the online occupancy rate was 72.5%, compared to 78% in 2019, but dramatically higher than 63% in 2021 and 13.3% in 2020.

To understand how deep the upheaval of the last few years was, it should be remembered that in March 2020, with the outbreak of the epidemic, the hotels were almost completely empty, and at the end of the first lockdown, in August of that year, the occupancy rate climbed to about 48%. The optimism disappeared when the next closures arrived, and in January 2021 the occupancy dropped to less than 10%, and since then it has gradually increased with the arrival of vaccines and the exit from the epidemic, up to a level of 81% last September.

 

A jump in the rate of energy expenditure in Europe

The year 2022 marks a return to normality in the hotel industry. It should be remembered that at the beginning the corona restrictions were still imposed, due to the Omicron strain, which affected the industry’s income. But the first nine months, also due to the surge in hotel accommodation prices, indicate a return to normal compared to the corresponding data from three years ago.

The Fatal chain itself recorded revenues of NIS 3.96 billion, a slight decrease of 1% compared to the corresponding period in 2019. According to Fatal, most of the recovery in revenues during the current year was due to the return to routine activity during the first quarter. The operating profit was eroded and decreased by 3% between the periods, to NIS 557 million.

In the bottom line, the chain registered a net loss of NIS 68 million, which was mainly due to an increase in rental payments in hotels not owned by the chain. Last year, some of these payments were still frozen, in view of the epidemic.

Fatal points out that among the challenges it faces are a lack of manpower alongside an increase in salary expenses. At Fatal, they plan to use new technologies to reduce the need for employees and move telephone order centers to cheaper areas.

 

Another issue concerns energy prices. In Israel, they remained similar, and stood at 5% of the total revenues from hotel operations in the first nine months of the year. But in Europe the crisis is evident, and these expenses have doubled from 3% in the first nine months of 2019 to 7% today, higher than their rate in Israel. In Great Britain and Ireland they also jumped from 3% of revenues to 5% this year. Among the solutions are a subsidy network that will be carried out by the governments of European countries, and in some hotels in Germany there is a geothermal system that reduces dependence on electricity prices.

Dan Hotel in Eilat / Photo: Courtesy of Dan Hotels

Dan Hotel in Eilat / Photo: Courtesy of Dan Hotels

Dan Hotels has not yet returned to the numbers of 2019

Among the three major chains, the best results were recorded by Yisrotel which presented a sharp jump in its profits compared to the results of 2019. Revenues in the first nine months of the year amounted to NIS 1.4 billion, a 27% increase compared to the corresponding period three years ago.

Revenues were affected not only by the return to normal, but also by the opening of hotels in recent years, including during this year, in Kinneret and Tel Aviv. Isrotel’s net profit doubled between the two periods, amounting to NIS 201 million.

On the other hand, hotels Dan It has not yet returned to the numbers of 2019. The chain’s revenues amounted to one billion shekels, a 5% decrease compared to the corresponding period at the time, and the net profit was eroded by 35% to 67 million shekels. The network stated that during the current year they were also affected by the increase in the cost of inputs, i.e. food and beverages and personnel costs.

In terms of stock performance, network stocks Fatal They registered an increase of 3.5% in the past year, and the company trades according to a market value of NIS 5.6 billion, with the value of David Fatal’s share (53%) at NIS 3 billion. This is a jump of over 280% in the share price since the low point of the Corona virus in March 2020. But in the last year it seems that the market has already embodied a large part of the recovery and is affected by the general trends.

The share of Dan Hotels, which is under the control of the Federman family, has eroded by 13% in the past year, with the company’s current market value at approximately NIS 3 billion. Isrotel shares, which are controlled by the Lewis family, have eroded by 3% in the past year, and the price reflects a value of NIS 5.5 billion for the company.

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