Israeli tourism was on track for another record year in 2014 until a barrage of rocket fire from the Gaza Strip and images of citizens rushing to shelters triggered a wave of cancellations.
The Gaza war, in which Israel is now waging a ground offensive to try to destroy Palestinian tunnels and missile stocks, is set to wipe at least half a billion dollars off the Jewish state's economy this year, industry bodies estimate.
More than 3.5 million visitors came to Israel in 2013, pumping some 40 billion shekels ($12 billion) into the economy. Thanks to new hotels and an eye-catching papal visit in May, officials had expected a 10 percent boost this year, with 1.9 million visitors arriving the first six months.
“Most hotels and airlines say the year is lost. The worst possible time for a war in Israel from the vantage point of tourism is the summer,” said Mark Feldman, chief executive of the Jerusalem travel agency Ziontours.
Most of the remaining passengers flying to Israel are returning Israelis and solidarity missions by Jewish groups.
Feldman said he has received no new reservation requests for September, adding: “Every day the war continues, we lose a week of future bookings.”
Israel launched an offensive against Hamas fighters in Gaza on July 8 after cross-border rocket strikes by militants intensified.
The conflict - in which more than 500 Palestinians, 18 Israeli soldiers and two Israeli civilians have died - shows no sign of abating. Sirens wailed in Tel Aviv, the main coastal city, on Monday warning of approaching rockets, and heavy fighting was reported in and around Gaza.
Tourism accounts for as much as 6 percent of gross domestic product in Israel, which is already facing weakening growth. Beyond the numbers, Israel also counts on tourism as a critical image booster and bulwark against world criticism of its policies towards the Palestinians.
The Israel Hotel Association (IHA) estimated $500 million in lost tourism revenue - including $100 million for hotels - in the third quarter because of the fighting. That translates into a 35 percent drop, or 280,000 fewer visitors than expected, it said, citing preliminary data.
Korean Air has temporarily suspended flights to Tel Aviv but other foreign carriers said they are largely sticking to their schedules, although some European airlines have made adjustments to prevent flight crews staying overnight.
Planes take off and land at the country's main Ben Gurion airport even as Palestinian militants are firing rockets toward central Israel.
They are not believed to possess surface-to-air missiles of the kind that downed a Malaysian Airlines plane in Ukraine last week. However, the Israel Airports Authority said takeoffs had been diverted to the east and landings to the north “due to air force operations”.
Arriving visitors are greeted at the airport by instructions on how to reach the nearest shelter in case of a missile attack.
Carriers declined to give figures on passenger numbers.
Feldman said cancellations by leisure and business travellers exceeded 80 percent.
The rocket fire has led to postponed concerts by pop stars such as Neil Young, Paul Anka and the Backstreet Boys.
Tel Aviv cafes and beaches are largely empty as people favour indoor activities within easy reach of shelters. Tourists who have stuck to their plans are sightseeing in northern Israel, which is largely out of reach of Hamas rockets.
Fattal, Israel's largest hotel chain, said 40 percent of the tourism industry's revenue is in July and August and estimated a decline of 60 percent in activity due to new reservations drying up as well as cancellations.
“We have seen 20 percent of the tourists that were in Israel shortening their vacation and a third cancelling their arrival,” a Fattal spokeswoman said.
Even the distant resort of Eilat has seen a 15 percent drop in activity and the chain's management said it would take months to persuade foreigners it was safe to visit.
“Hotels in Tel Aviv and Jerusalem are supposed to be 80 percent full right now, but today, the occupancy rate is about 40 percent,” Eli Gonen, IHA president, told Haaretz daily.
The Tourism Ministry said that while the number of visitors was down, there has been no panic or mass departures.
“Based on previous experience, (we are) optimistic about the ability of the industry to bounce back to routine,” it said in an emailed statement.
After the last 8-day Israeli offensive in Gaza in late 2012, foreign and domestic tourism had bounced back with a record year in 2013 and a strong first half to 2014, it said. ($1 = 3.4217 Israeli shekels)