But the hotels are worse.

My mate is flying to Crete for two nights instead of Eilat, if you are going to have to go to NATBAG anyway you might as well go somewhere nicer than Eilat.

As an unapologetic Zionist, with all due respect, Eilat is a dump.

I see no point in spending billions to build a HSR there, to line the pockets of some hotel developers who charge way too much for substandard accommodations.
Having said that, its sad that SDV is closed, as it was a nice little airport.

At least I got to fly SDV-ETH 3 years ago one last time. One thing that I would say is that now that all flights to Eilat are from TLV, if I were Israir, I'd try to offer codeshares on TLV-ETM for every airline other than LY and Arkia that fly to TLV. Would be a great way to get more people connecting through TLV on their way to/from Eilat.

I do agree however that flying to Eilat doesn't make economic sense for a family when they can often fly abroad and have it be cheaper due to the overpriced hotels in Eilat.

I'm definitely in favor of that, assuming they can arrange a "better" transfer experience as today the MCT is horrendous and PAX have to queue for immigration, get their baggage, find the shuttle to T1 etc. etc.

My theory is that part of it is due to the massive amount of free or almost free vacations a large part of the population gets each year (nofesh keva, employees at Teva/teachers/etc.). It surely fills many rooms.

Eilat is indeed a dump. It is a dump because the hotels are horrible. And the hotels are horrible because they are kosher and serve substandard food, and because they provide substandard service in cleaning and maintenance of hardware, furniture and public areas. It is a dump because it offers little beyond the beach. Eilat is Yerucham with a seashore.
Some ways to change is to lift restrictions on hotels, allow gambling and provide an easy way to get there and from there - with an HSR.

Why would being kosher create a horrible hotel? Also, is there a legal requirement for hotels in Eilat to be kosher?

One of the reasons is that they do not cook on Friday nights and Saturdays. So you get heated and not fresh food. For the same price of course. I am not an expert but there is some kind of regulation that requires major hotels in Israel to keep kosher. I think the only exceptions are a few boutique hotels in Tel Aviv and Arab owned and operated hotels such as the American Colony in Jerusalem (which is an amazing hotel, speaking of).

Now Eilat being a dump does not draw significant non-Jewish tourism, hence there is a large demand for kosher. It is a closed circle.

BATLV, I disagree with you concerning the Kosher food.
The food, although reheated, is still decent on Shabbat, especially Friday evenings. And if you don’t like it, Eilat offers non Kosher restaurants.

To be honest, while overpriced and sometimes crowded, I don’t get what is so horrible about Eilat hotels.

Just about every hotel in Israel is Kosher including the King David, the Waldorf Astoria, the Intercontinental, etc. and none of these make Tel Aviv hotels bad per se.

I think what ruins Eilat is the corporate package tour machines that drive low-mid level employees of Israeli corporates to 3-4 day family vacations there. I have been a guest for some of them and they can be quite eye-opening in terms of the guests and their behavior. There are hotels in Eilat I would not return to because of this.

Interestingly I have found AirBnB rates in Eilat to be quite reasonable so clearly it isn't so much of a supply/demand issue of Eilat.

Decent? I would say it is edible and that's it. And yet they charge you lime a Micheline star restaurant. Non-kosher options in Eila a few and far between and the decent ones require to reserve a table at least a week ahead. Not suitable for a family. The culinary state of things in Eilat is very dire - hence this is a dump of a resort ( not only because of this but also because of this)

One cannot even compare the quality of restaurants say in Hilton Tel Aviv and Montefiori Hotel, or the Waldorf Astoria and Mahneyehuda. The Major hotels are just not good enough, certainly not to charge the prices they do. King David's La Regence is slightly better.

The packages you are talking about encompass ALL of Eilat's hotels. And, yes, those friends of mine who did not give up on Eilat completely as I had, go for AirBnBs with pools and nice view. They make their own food and do not leave the place, because the other problem of Eilat is that you have nothing to do there outside the pool/beach.