As long as consumer confidence stays high, Israeli tourism will survive

Travel adviser: Flights are full and organized tours in Israel are at record numbers. The country may be on the verge of civil war, but, for now, the sky is not falling.

 PASSENGERS AT Ben-Gurion Airport get ready to leave Israel.  (photo credit: GILI YAARI/FLASH90)
PASSENGERS AT Ben-Gurion Airport get ready to leave Israel.
(photo credit: GILI YAARI/FLASH90)

When you’re looking for the disruptors that might keep tourism and aviation executives up at night, you might look to fluctuating fuel prices, widespread grounding of planes due to a continued shortage of both planes and pilots, and the seemingly never-ending series of carriers going bankrupt.

We have already survived a global pandemic that decimated the industry, and which was compared to “the Blip.” (The term “Blip” originated in Spider-Man: Far From Home and was used to describe half of all living things in the universe disappearing.)

In the United States, a former president states he is about to be arrested and exhorts his supporters to take to the street. In Israel, millions of demonstrators have been marching for several months to try to influence the government’s policy, as its race to alter the judicial system continues to move forward.

One can postulate that a five-year blip could alter dramatically the world’s never-ending roller coaster-ride when, too often, it appears the inmates have taken over the system.

What is the industry's main concern?

In reality, though, these disruptive factors should not be the industry’s leading causes of concern.

 An El Al plane flying above the clouds. (credit: IPTC/GPO) An El Al plane flying above the clouds. (credit: IPTC/GPO)

Yes, the price of airline fuel has more than doubled in the last five years. Over the past 10 years, inflation in the US has averaged 1.88%, but in 2022 showed an annual inflation rate of 8%. Israel, too, is experiencing higher-than-usual inflation. Given the extremely low inflation experienced over the past 10 years, the current inflation rate has shocked many consumers. Some have been forced to cut back on spending to afford basic living essentials.

The simplest way to describe inflation is that it increases the price of goods over time. Conversely, it’s also the decline of purchasing power over the same period. For example, if a pack of gum costs NIS 10 today and the inflation rate is 5% annually, next year, the gum will cost NIS 10.5. Or if a meal for two cost you last year NIS 100, to break bread today would cost NIS 105. The price of the item went up, and the purchasing power of your shekel went down.

This increase, though, has not stopped consumers from either spending or using discretionary income. If prices go up only 5%, the vast majority of consumers would suck it up. Yet even with the steep rise of inflation, the fervor with which people are traveling and making plans to travel remains unabated. Economists call this price elasticity.

What is meant by price elasticity?

To put it simply, the question is how much the price of a service can rise before demand for said service is reduced. The bottom line is that we are far from that tipping point. Consumers to date have not yet reduced their consumption of most items. Surveys continue to show that in most countries, future travel plans have not been curtailed.

Surprisingly, the No. 1 factor that affects and has always affected the tourism industry is consumer confidence. Consumer confidence is fickle and fragile, and, while certainly not perfect, it can at times help signal consumer spending.

Confidence is everything

Let me make it crystal clear: no matter how much actual money is taken out of Israel to try to influence the Netanyahu government to cease its judicial reform, the flying public continues to take to the skies. US congressional delegations have been arriving in Israel, and many congressmen have expressed their opinions about the proposed legislation. Hundreds of congressmen and senators have made plans to fly here in the spring, some to take part in the 75th anniversary of the creation of the state. Other groups have already made plans for the summer and the fall.

Israeli businesses, along with their US and European counterparts, have embraced the open skies with unrivaled enthusiasm, and while business travel remains below pre-pandemic numbers, it is interesting to note why. Keep in mind that business travel is tax deductible, so the vagaries of inflation are less beholden to market factors. Dig a bit deeper and one finds that the sales and marketing teams of most companies have resumed their business travel in historic numbers. What hasn’t recovered, and may not, is travel abroad to meet with counterparts doing a similar job in another country. Those trips have been severely curtailed, with meetings now held by Zoom or Teams rather than face-to-face.

Look what happened recently. A run on Silicon Valley Bank created a weekend with depositors uncertain if they would ever have access to their funds. This was not only a US event. Israeli companies had long ago decided that using SVB was both a sign of having made it in the US market and an opening to more lines of credit. Nearly simultaneously, First Republic, a midsize bank catering to wealthy clients, became such a danger to the American banking system that the government had to cudgel the industry to stage an intervention. The reason has a lot to do with the high-net-worth people who bank there. It’s the biggest example of a bank that could go down and shouldn’t go down – a first-class bank, which was why a deal to infuse First Republic with $30 billion in cash was quickly patched together.

The government-organized rescue isn’t a bailout. Its goal is to give the bank enough cash to meet customer withdrawals and assure investors that it can withstand the turbulence that’s shaken the industry over the past week. Their shares have dropped more than 80% in the last two weeks.

Segue over to Europe, where Credit Suisse is dealing with its own earthquake. The fate of Credit Suisse could be decided in the very near term, after a torrid week for Switzerland’s second-biggest bank.

Investors and customers pulled their money out of Credit Suisse over the past several days, as turmoil swept the global banking industry following the collapse of SVB and First Republic. Their confidence was shattered. Shares of the Swiss bank lost 25% over the course of the week, despite an emergency $54b. loan from the Swiss National Bank. The price of financial contracts designed to protect investors against possible losses on its bonds soared to record levels.

The lifeline from the Swiss central bank, announced last week after Credit Suisse’s stock had crashed to a new record low, bought the bank some time. But by Friday, analysts were speculating that a full-blown rescue would be needed, and reports began to swirl of a possible takeover by its biggest Swiss rival, UBS.

Money matters, money talks, and when depositors are worried that their life savings are being threatened, one of the first things that consumers do is stop their travel plans.

The financial news has been dominated in recent weeks by headlines about a string of bank failures, which have rocked the start-up community. SVB was the first to collapse, followed by Signature Bank. Both banks tanked after clients rushed to withdraw their funds. In simplest terms an old-fashioned run ensued. US regulators have since seized both banks. More importantly, they have guaranteed that all depositors would have access to their accounts. While the figures are not in, one can surmise that the vast majority will transfer their accounts to larger and better capitalized banks.

Now it seems there may be ramifications from the bank failures for travelers. Some travel experts have opined that travel prices may drop in the near future, amid the bank failures. People are worried. And when they’re worried, they tend not to make travel decisions. When people are worried, as they may be now, it translates to less spending. So, you may be seeing, at least in the short-term reservations now, a big softening, and the algorithms that the airlines used to project demand and set prices could go out the window again. Personally, I find that total hogwash.

Airfares typically change throughout the day, every single day of the year. This includes when the economy experiences unexpected changes, as with the pandemic in past years, and now, perhaps amid the bank failures. When you have a disruptive situation like this, when it affects your money, or at least the perception that it affects your money, people tend to want to hold on to their money.

If prices do come down, it will be a much-needed relief, in some ways, from inflation. According to the Bureau of Labor Statistics’ Consumer Price Index, airfares in the US rose by 26% in 2022 compared to 2021.

The prediction before the banks crisis affected consumer confidence was that in 2023, travelers should expect higher prices for almost all travel-related expenses, including flights. The range of the increase varies according to geographic location, but is projected to fall between 4% and 5%.

The sky is not falling

In Israel, the continued civil demonstrations could easily lead to massive civil disobedience, if the judicial overhaul passes. Israeli companies will continue to vote with their bank accounts and transfer millions of shekels out of the country. But unless consumer confidence is affected, the outgoing and incoming tourism numbers will not be affected. Demonstrators and supporters will still travel abroad this spring and summer. The day after Passover will see Israeli airports stretched to capacity. The Christians will fly into Israel for Easter, and the number of groups flying in and out of the country will surpass pre-pandemic levels.

As long as the bank collapse does not morph into runs on banks throughout Europe, the US or in Israel, consumer confidence in the short run will not be affected. Wars and pandemics affect travel plans; severe stock market corrections and runaway inflation curb travelers’ plans. We are not there today.

As Israel approaches its 75th anniversary, there is chaos in the streets and pressures from a wide variety of political and social experts. For so many interested parties, the level of despair and frustration are at record-high levels. Clarion calls to negotiate fall on deaf ears.

Yet the flights are full, the cruises are sold out, organized tours to and from Israel are at record numbers. The country may be on the verge of civil war, but, for now, the sky is not falling.

The writer is the CEO of Ziontours, Jerusalem, and a director at Diesenhaus. For questions and comments, email him at