Tourism, Security and Safety From Theory to Practice

3
War, Terror, and the Tourism
Market in Israel
Aliza Fleischer and Steven Buccola
Learning Objectives
■
To explain the nature of the tourism market as reflected in the market for hotel
space.
■
To investigate the dynamics of the tourism market.
■
To delineate the difference between the supply and demand for hotel space and
between the local and foreign demand for tourism.
■
To demonstrate the interaction between local and foreign tourism demand.
■
To analyze the impact of terror attacks on room prices and on the number of occu-
pied rooms in hotels.
■
To understand why hotels allow some capacity to go unused during war or terror-
ist intervals.
■
To explain the importance of demand elasticity in hotels reactions to demand
depressions during terror attacks.
Introduction
1
By at least one reckoning, world tourism is larger than any other export industry.
In 1999, tourism accounted for $532 billion in world sales, compared with $525
billion in auto exports and $399 billion in computer exports (World Tourism
Organization, 2000). Tourism is important not only to developed nations but to
many poorer ones, whose chief resources often include their visitor attractions.
Because of its impact on foreign exchange earnings and employment, tourism
demand has been extensively investigated. Lim’s (1997) review alone includes
nearly a hundred demand papers, including O’Hagan and Harrison’s (1984) analy-
sis of US tourist expenditures in Europe and Syriopoulos and Sinclair’s (1993)
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Tourism Security and Safety: From Theory to Practice
50
study of US and European tourism in the Mediterranean. As Sinclair (1998) and
Lim note, most demand analysts use a single-equation format, focusing on relative
prices, tourist income, and particular travel-generating events. The underlying
assumption of these approaches is that capacity is infinite: demand at any location
can be satisfied at constant cost. Tourism capacity may be regarded as depending
on a measure of the “size” of the local attractions, on the associated infrastructure
and transportation network, and on the number of beds at local hotels. Studies that
include only demand components therefore assume that such capacity factors are
large relative to the number of visitors. They also ignore pricing strategies that
hotels employ to manage their fixed resources in the face of demand fluctuations.
Little work appears to have been done on the supply side of the tourism market,
and even less on how supply and demand jointly react to exogenous forces. Among
the few extant supply response studies is Borooah’s (1999) on the Australian hotel
sector, which characterizes the supply of hotel rooms as a function of earnings per
room, occupancy rate, and the interest rate. To reflect the quasi-fixed nature of
hotel capital, prices in Borooah’s study lag and hence are predetermined, permit-
ting the demand side of the market to be ignored. Wheaton and Rossoff (1998)
have investigated whether cyclical behavior in the US hotel industry matches that
in the overall economy. Presaging to some degree our own results, they find that
bed night supply and demand often are in disequilibrium because hotels are reluc-
tant to adjust prices in response to short-run occupancy rate changes.
The purpose of this chapter is to investigate a nation’s tourism market, as
reflected in the market for its hotel space. We examine Israel, where war and polit-
ical climate appear to have had a significant impact on revenue and profits. We are
interested in distinguishing between the local and foreign market for tourism, and
in the interactions between these two sectors. We also seek reasons why hotels have
allowed some capacity to go unused during war or terrorist intervals and, for that
matter, during much of the year, despite an evident ability to price their services
for full-capacity utilization. Our analysis owes much to Krakover (2000) who,
along with Bar-On (1996), examined the influence of political climate on tourism,
albeit in the absence of many demand or supply determinants.