Getting ready: Industry capacity is set to increase to cater for more visitors

The government’s stated aim of 10m international visitors by 2016 is ambitious, but one with attractive benefits for an economy that has long fallen short of its potential. Such a surge would raise tourism revenues in excess of P1.8trn ($40.8bn), equivalent to 7% of GDP, and generate 10m jobs, the benefits of which would cascade through the economy. The Philippines is starting from a low base, which might afford it some advantages, but the 10m target requires a minimum 21% annual visitor growth. In 2010 it commanded just 0.4% of world international visitors (up from 0.3% in 2009) and despite a 5.2% share of the ASEAN market, sits in sixth place among its ASEAN colleagues, below Vietnam, which easily surpassed the Philippines’ record of 3.5m international visitors, attracting 5.1m in 2010, according to the UN World Tourism Organisation.

INDICATORS: However, 2011 saw the Philippines regain some its stride. Tourist arrivals have recovered their pre-global-downturn trend, posting a 16.7% increase in foreign arrivals in 2010, with 11-month figures for 2011 up 12.6% on the same period in 2010. These are a good indication that the Aquino administration’s promise of good governance and reduced corruption has reinvigorated investor confidence after years of neglect.

The market that emerged in 2010 and 2011 broadly reflects the new global economy deferential to Asia’s resurgence, and the Philippines has proved adaptable. Its top 10 markets for the past five years have remained stable, with East Asian arrivals increasing their share of the source markets to 50.7% as of September 2011, with North America, Europe and ASEAN giving ground.

ARRIVALS: Strong growth among Asian middle classes with money to spend and a desire to travel has fuelled much of this, particularly among Chinese, Japanese and Korean demographics who have begun to take more holiday, according to the Philippine Department of Tourism’s (DoT) research. While leisure travel remains the dominant segment, at approximately 65% of visitors in 2010, there is also a growing business trend among the Indian, Japanese and Hong Kong contingents, which has helped push receipts up 14.5% year-on-year in 2010, to P1.1trn ($24bn), equivalent to 5.8% of GDP.

Package tours have also showed strong growth, accounting for 33% of arrivals in 2010, up from 18% in 2009 and spurred on by the government’s pursuit of this particular segment to bolster much-needed arrival figures. Package tours have eaten into the overall free independent traveller (FITs) arrivals and the typically higher receipts associated with this demographic, but FITs have grown among some of the Philippines’ key FIT contributors. Korea, the US, Japan and China were 2010’s core markets and the government has its eyes on Australia, Taiwan and Canada moving forward.

Despite these apparent positive trends, the Philippines may have lost ground in critical new markets, with 90% of arrivals in 2010 repeat visitors, according to the DoT. These figures may yet be proven anomalous given the negative events of that year and a healthier spread seen in previous years, yet the DoT does not seem overly concerned as the revised 2011 National Tourism Development Plan (NTDP) gets under way.

DEVELOPMENT PLAN: Replacing elements of the original master plan attached to the 2009 Tourism Act, the plan will push development in 10 clusters, across eight categories in which the Philippines believes it has or will soon develop a competitive edge: nature; culture; beaches; shopping, leisure and entertainment; meetings, incentives, conferences and exhibitions (MICE); health and wellness; cruises; and nautical tourism.

Whereas the Philippines has a competitive edge in ecotourism, a key pillar of the NTDP’s growth areas, DoT analysis has highlighted shopping as tourists’ primary expenditure, with entertainment secondary to accommodation and food and beverage. Spending on tours and related activities was negligible in 2010. The NTDP’s nationally inclusive plan is tailored to the strengths of the 10 clusters and has consequently reoriented short-term growth opportunities toward capacity development, not only arrivals. This addresses the Philippines’ core challenge: competitiveness. Ranked 94 of 139 in the World Economic Forum’s Travel and Tourism Competitiveness Index in 2011, it was placed just above Cambodia, and the state of its roads, ports and ground infrastructure were deservedly singled out for censure.

These are not unknown issues and the NTDP, in coordination with the Tourism Infrastructure and Enterprise Zone Authority (TIEZA) and the Department of Public Works and Highways, has outlined development strategies to redress many of these issues; recognising that without substantial investment and progress in infrastructure, the government’s tourism targets cannot be met (see Transport chapter).

AIRPORTS: Six airports are currently under construction, with public-private partnership (PPP) opportunities expected to be finalised in 2012 for the operation and management of services at Legazpi International Airport in Bicol, Panglao Island International Airport in Bohol, Alaminos Airport in Pangasinan, Dalupiri Airport in Samar, Kabangkalan City Domestic Airport in Negros Occidental, and San Carlos City Airport, also in Negros Occidental. PPPs and the expansion of facilities are also expected to be on offer for the Philippines’ 11 other existing airports, including Ninoy Aquino International Airport (NAIA) in Manila. Existing airport facilities are not universally poor and some domestic airports are capable of handling higher traffic capacities that would suggest planning for future development, but to date this has not been centrally co-ordinated. Moreover, a lack of connecting infrastructure to the necessary tourist destinations has been an obstacle to viable commercial passenger traffic within the country.

The lack of connecting infrastructure between Manila and the Diosdado Macapagal International Airport in Clark, 85 km north of Manila, tapped as the replacement to NAIA, has frustrated government efforts to relocate carriers, and looks set to make little progress until completion of the north rail project in 2016, or later (see Transport chapter). It is not untypical of the scenario facing the industry nationwide, but as the infrastructure projects come on-line, further expansion and complementary investment is expected.

HOTELS: Growth in hotels has remained largely tied to established destinations. Of 9273 new hotel rooms approved for Board of Investments (BOI) and Philippine Economic Zone Authority (PEZA) incentives by the DoT between 2010 and 2014, 8135 are billed for Metro Manila. In Cebu and Bohol, both major destinations in their own right, just 558 and 549 rooms are eligible, respectively, and Bicol, adjacent to the Philippines’ top performing destination, Camarines Sur, has just 31. The hotel industry as a whole was hit hard by the global downturn and the events of 2010, seeing a sustained drop in occupancy rates. The rapid expansion billed for the intervening years to 2016 has been welcomed by many, but is expected to see a further reduction in occupancy rates as competition in the market heats up.

Leading hotels are planning to drop their rates in order to accommodate the competition from the new developments that they say have drawn much of the leisure and some of the business market out of Metro Manila to the new satellite central business districts of Mall of Asia, Fort Bonifacio and Newport City, that will host international brands such as the Radisson (500 rooms) and the Raffles Residences and Fairmont Hotel in Makati (330 rooms) when they open in 2012.

LIFE OF LEISURE: Resorts World Manila is a new multi-purpose complex adjacent to NAIA at Newport City – including hotels, a casino and a shopping mall – has stimulated the interests of local and international business contingents, but such developments are unlikely to skew any national trends. “The beach destinations will always be key to the leisure market. For the short-haul market and the MICE markets, Manila is becoming more and more popular. It has the big hotels and the night life, the casinos and the shopping. Yet the main draw of the Philippines is still the islands and the beaches,” said Alexander Stutely, the CEO of travel agency Blue Horizons. A point borne out in that international brands have largely avoided the resorts market, which enjoys a plentiful supply and ahead of a proven international upswing in arrivals, is far less attractive.

While Manila booms, Palawan’s Puerto Princesa and Mindanao’s Davao are also of growing importance to the industry. Palawan’s Underground River has gained international recognition as a UNESCO World Heritage site, which doubtless helped prompt a 158% rise in foreign arrivals and a 39% rise in domestic visitors in 2010. Resort developers’ attention has also turned to the island, following the example of Ayala Land subsidiary Ten Knots Development Corporation’s high-end El Nido Resort and Spa in El Nido to the north.

Davao, although blighted by perceptions of an Islamic insurgency in Mindanao’s off-lying islands, has remained isolated from the conflict and seen major improvements in infrastructure and economic development. “It’s an area with large potential,” said Rico Violeta, the vice-president of the Philippine Travel and Tourism Council. “It’s easy to sell once the conflict is over.” Progress in peace talks with the Moro Islamic Liberation Front has been slim, but the Aquino administration’s overtures have seemingly been well received.

CLUSTER DEVELOPMENT: Both Palawan and Davao feature in the NTDP’s designated clusters, which will be host to 77 Tourism Development Areas (TDAs) and Tourism Enterprise Zones (TEZs) in which TIEZA is able to offer investment incentives for providers of a broad swathe of facilities, services and attractions for tourism purposes. It is an aggressive strategy that will outpace the 12 TEZs established during the previous six years.

Developed in consultation with the private sector, each cluster has designated themes suited to existing resources and facilities, with major public investments targeting critical infrastructure projects that the government expects to be the catalyst for further investment and growth. Initial planning for Palawan includes P1.8bn ($41m) of investment in seven road and airport infrastructure improvement projects alongside six heritage sites in 2012. The plans also include three TDAs and TEZs, which are estimated to generate some 84,000 additional jobs focused on the resort markets, MICE, and eco- and adventure tourism by 2016.

Davao’s airport will be marketed as an international gateway, with three TDAs, two TEZs and a small investment of P20m ($921,810) toward two heritage sites that is hoped will generate 38,000 additional jobs. The majority of investment in Mindanao is headed not to Davao City, but its northern neighbour, Cagayan de Oro. Part of the Northern Mindanao Tourism Cluster, this is expected to generate 78,000 additional jobs by 2016, capitalising on its existing international airport, the development of Laguindingan Airport and TEZ, as well as five TDAs. Both Davao and Cagayan de Oro are being promoted as destinations for cultural heritage sites, resort properties, MICE, eco- and adventure tourism.

EASTERN CLUSTERS: To the east, the Zamboanga Peninsula cluster, complete with international airport, will be promoted for resort and maritime tourism, creating an additional 14,000 jobs through four TDAs, two TEZs and a $3.9m investment in 11 heritage sites.

The Visayas, north of Mindanao and home to established popular destinations such as Boracay, Bohol and Cebu are expected to prosper further with considerable investments flowing into what are currently the crown jewels of the tourism industry. Central Visayas is focused on Mactan-Cebu International Airport, where 233,000 additional jobs are expected by 2016 to develop a major expansion of the airport and road infrastructure projects, five TDAs, two TEZs and 17 heritage sites, which the government expects to raise room demand by 7000 visitors. These will be focused on MICE, business and shopping, culture, heritage, and ecotourism.

The Western Visayas, which incorporates Boracay, will include completion of Boracay’s Kalibo airport upgrade and provide international access via Iloilo in the south-east of the island. Focused on coastal and island resorts, ecotourism, marine sports and MICE, 150,000 additional jobs and 4504 rooms are expected by 2016, fed by three TDAs and TEZs, eight heritage sites and the injection of P1.3bn ($29.3m) into 12 infrastructure projects in 2012. “The Philippines has rich cultural and natural assets, making it well positioned to develop as a key ecotourism destination,” said Irina Bokova, the executive director of UNESCO.

NORTHERN CLUSTERS: Developments in Bicol, to the north and famed for its whale shark diving, is expected to generate 183,000 additional jobs with the completion of the New Bicol International Airport that will feed a growing demand for resorts, ecotourism, MICE, maritime sports and two TDAs, served by improved road networks budgeted for 2012.

Luzon, Metro Manila and Calabarzon are expected to generate over 386,000 jobs, partly due to the area’s economic pre-eminence as the nation’s capital, and to draw business under its growth themes: business, MICE, entertainment, shopping and medical tourism. These will be fed by the designation of five TDAs and two TEZs. The Central Luzon cluster, stretching northward from Manila to the final Laoag-Vigan cluster, is expected to generate 75,000 jobs catering to a business-orientated clientele, while also diversifying into sports, resorts and retirement tourism with seven TDAs.

While the NTDP deals with the practical measures necessary to push the country forward, the greater challenge will remain the enforcement of regulations, which has previously led to the inconsistent implementation of local policies, taxes, and building and service codes by local government units (LGUs) that threatens to compromise progress. Previous corrupt practices at all levels of government have also done more to dissuade investors and visitors than many other factors.

The DoT, acknowledging the importance of this issue, and working in concert with the objectives of the Philippine Development Plan (2011-16), has included technical capacity-building measures for LGUs within the NTDP, re-centralised some bureaucratic functions concerning permit issuances and registration to regional TIEZA offices, and implemented mandatory nationwide accreditation for tourism businesses. Combined with the liberalisation of restrictions on foreign ownership for TIEZA-approved investments, these initiatives should help to improve the Philippines’ World Economic Forum index rating in 2012 as the programmes get under way.