Niche market: Potential is slowly being realised, but barriers remain

With a near-pristine environmental record and more than 70% of its territory covered by tropical rainforest, Brunei Darussalam has strong potential to capture a sizeable share of the growing Asian ecotourism and family holiday market. Indeed, having avoided the brash materialism that typically characterises petrodollar wealth, the country is host to an abundance of natural attractions, from rainforests to beaches, rare wildlife to the legacy of tribal cultures, and a rich vein of Islamic history.

Despite these strengths, the industry remains relatively small as a share of Brunei Darussalam’s overall economy. There is recognition by the government and various stakeholders that the current tourism model is unlikely to contribute much towards economic growth, and efforts moving forward will focus in particular on high-end and low-volume tourism with a minimum impact on the Sultanate’s environment and local culture.

RISE IN ARRIVALS: According to data provided by the Brunei Tourism Board (BTB), 241,426 visitors arrived in 2012, holding nearly steady from 2011 when 242,000 arrivals were recorded. This was up 25.5% from 192,379 visitors in 2007. Visitor data for 2011 showed that passengers arriving on holiday accounted for some 38.2%, followed by 17.4% for business, 9.1% visiting friends and family and, finally, 0.7% for exhibitions. Another 24% of total arrivals were attributed to passengers in transit.

ASEAN countries accounted for 123,314 arrivals in 2011, making it the largest market. East Asia, the source of 41,397 visitors, placed a distant second, but this region exhibited the strongest growth rate between 2009 and 2011, at 75%.

This robust performance is expected to continue going forward, with the Chinese market leading holiday arrivals at around 82% of East Asian passengers, according to figures from the BTB. Long-haul arrivals from the US, UK, Europe and the Middle East topped 36,719 in 2011, a 34% increase on 2009, and Australian/New Zealand arrivals placed fourth with 29,225, an increase of 32% over the same period.

Brunei Darussalam’s top 10 visitor markets reflect the way in which BTB has focused its efforts. Malaysia, China, Indonesia, Australia and Britain constituted the top five sources of visitors, accounting for 62% of arrivals (151,740), followed by the Philippines, Singapore, New Zealand, Thailand and a new market entrant, India. Combined, the top 10 countries accounted for 84.8% of arrivals (205,213).

LAND TRAVEL: While these figures are useful and yield some insight into the market, they most likely underestimate the true number of visitors to the Sultanate, many of whom arrive by land. Indeed, there are regular, but largely undocumented, traffic flows across Brunei Darussalam’s land borders with Malaysia. Neighbouring Malaysian states of Sabah and Sarawak attracted 2.8m and 3.8m foreign arrivals in 2011, respectively, with Sarawak attracting some 1.6m Bruneian visits. While figures for incoming traffic through Brunei Darussalam’s land borders are currently unavailable, Sabah Tourism reported that 90% of Bruneian visitors arrived overland. This suggests that there may be significant potential to cultivate greater cross-border tourism traffic from neighbouring regions and their visitors.

ECONOMIC ROLE: Despite the documented growth in arrivals over the past few years, the sector still plays a relatively small part in the economy, which remains dominated by the energy sector. According to data from the World Travel and Tourism Council (WTTC), tourism contributed an estimated 2% of GDP or BN$346.9m ($270.1m) in 2011, with the sector’s indirect contribution to GDP amounting to BN$1.2bn ($934.6m). The sector currently employs some 5500 people, about 2.9% of the labour force. The WTTC projects overall growth in direct GDP contribution of 2.1% per annum over the next decade and an increase of 1.9% in total contribution, with the latter reaching BN$1.42bn ($1.1bn) by 2022. Investments are also expected to rise 2.8% annually, hitting BN$680.4m ($529.9m) by 2022.

The sector is largely balanced between foreign visitor spending at 53% and domestic spending at 47%, according to WTTC statistics. However, business travellers contributed just 11.7% of market spending and current WTTC projections expect this segment to fall 18.4% per annum from BN$109.8m ($85.5m) to just BN$14.9m ($11.6m) by 2022. Although Brunei Darussalam’s leisure market accounts for the majority of activity, a moderate revival of the business segment could be expected over the mid-term as wider government-led economic initiatives gain momentum.

POLICY PRESCRIPTIONS: For some years now, tourism’s potential has been spotlighted in Brunei Darussalam’s national vision, Wawasan Brunei 2035, as a contributor toward the country’s goal of economic diversification and the development of employment and business opportunities for Bruneians. However, despite this declared interest in tourism promotion, substantive progress has so far been slow to develop. The World Economic Forum has recognised the tourism potential of the country, ranking it at 67 out of 139 countries on the 2011 Travel and Tourism Competitiveness Index, but the index also indicates that the country has yet to put emphasis on the sector, giving it a ranking of 127 of 139 for the prioritisation of travel and tourism.

This could change in the near future, however. In 2011 the BTB under the Ministry of Industry and Primary Resources (MIPR) completed the Brunei Tourism Master Plan 2012-16 (TMP), a document that sets out some overarching policies for the tourism sector and establishes a goal of more than 400,000 arrivals per year by 2016. The TMP also identifies 69 development projects, centred around two strategic thrusts, nature and culture in Islamic heritage. The first focuses on ecotourism, wildlife, adventure and education, while the second emphasises projects related to museums, handicrafts and the capital’s “water village”, Kampong Ayer, which is home to 30,000 and connected by 36 km of boardwalks.

This two-pronged approach has earned the praise of Taleb Rifai, the secretary-general of the UN World Tourism Organisation, who told media, “The future vision of tourism in Brunei Darussalam is based on the two pillars of nature and culture. This is definitely the way forward, as it distinguishes Brunei Darussalam’s model of tourism development as unique and special, and this is what tourism is all about.”

The projects set out in the TMP are intended to be catalysts upon which the private sector can capitalise and develop their own investments. As of early 2013, the plan had yet to be published, although there is an expectation that the sector will kick into higher gear once that happens.

TOUR OPERATORS: Within an environment of limited industry coordination and relatively loose regulation, the main players in the tourism sector are foreign tour operators that run independent and unregulated tours over Brunei Darussalam’s borders. While Malaysian authorities operate stringent enforcement of tour operators, initiating spot checks on many tourist coaches and buses, Brunei Darussalam generally does not. Foreign companies running coach tours from neighbouring Malaysian states utilise unlicensed tour guides, drawing customers away from their Bruneian competitors. Authorities introduced a formal World Federation of Tourist Guide Associations accreditation scheme in 2008, alongside several tour guide courses and study programmes, in an effort to control the underground sector, but the impact of these measures has so far been difficult to determine. In the interim, being less able to compete given the maturity of markets across the Sultanate’s borders, domestic tour operators are concentrating their resources on meeting demand at the market source, which has placed an onus on air arrivals. Yet even this has not been without incident.

TAKING FLIGHT: In 2011 the national carrier, Royal Brunei Airlines (RB), decided to reduce the number of long-haul routes (indefinitely suspending those to Auckland, Brisbane, Ho Chi Minh and Perth) and shift to a focus on the ASEAN region. The carrier is the most important player in the domestic aviation sector, accounting for more than 70% of arrivals in 2011, equivalent to a total of 163,944 passengers, an increase of 17% year-on-year (y-o-y). In comparison, its principal competitor, AirAsia, held a market share of just 12.9%, equivalent to 29,615 passengers, in the same year. Looking ahead, RB is positioning itself as a boutique carrier and shifting away from leisure tourism in order to cater to its business market contingent. Business passengers on regional routes comprise nearly 50% of flight activity, according to information provided by the airline. By catering directly to this market, changes to RB’s marketing strategy may have a knock-on effect and lead to improvements in the business segment of the entire tourism sector.

EVOLUTION: The removal of these routes undoubtedly has had an impact on the local tourism sector, but it is important to note that long-haul arrivals constituted just 15% of arrivals in 2011 and some 90% of these passengers were in transit. With few alternative airlines and air arrivals almost solely dependent on the capacities of RB aircraft, firms are now adjusting their strategies based on RB’s remaining four long-haul routes (Dubai, London, Melbourne and Jeddah), and nine short-haul destinations (Bangkok, Hong Kong, Kota Kinabalu, Jakarta, Kuala Lumpur, Manila, Singapore, Shanghai and Surabaya). Further changes are unlikely, according to Mannion.

Market participants are researching alternatives to RB, with tour agencies looking to other airlines and the BTB considering several low-cost carriers, including Cebu Pacific Air, AirAsia and MAS wings, to develop bilateral marketing campaigns.

REGIONAL RELATIONS: With the discontinuation of several of its long-haul routes, RB has turned its attention to ASEAN connections. Many industry participants are already focused on regional opportunities, and more sector players are moving in this direction. The BTB has offices in Australia and China with the Walshe Group and Beijing Longway International Travel Services, respectively, while the Empire Hotel and Country Club, a luxury resort, has offices in the Middle East, Hong Kong, Beijing and Australia, which it uses to promote itself as a destination.

REFERRALS: Local tour operators, adapting to fewer long-haul routes, are leveraging Brunei Darussalam’s South-east Asian location and forthcoming high-profile role as the 2013 ASEAN chair. By partnering with destination management companies at ASEAN’s principal gateways, Kuala Lumpur and Singapore, Bruneian tour operators are seeking more referral bookings from local agents on the ground in reciprocal and critical promotion agreements. “Companies here in Brunei Darussalam are making a noteworthy effort to sell the destination abroad, but there is still little interest by foreign firms to explore the Sultanate as a destination. This is likely due to the limited scope of available attractions,” Wong Peng Hoon, former RB executive, now general manager of Anthony Tours, told OBG.

Operators are also trying to promote Brunei Darussalam as part of an ASEAN circuit tour. This remains a product in development for the most part, but it may come closer to fruition with the advent of the ASEAN Economic Community in 2015.

CHINESE FOCUS: Specific attention has focused on the Chinese market through partnerships with stateowned China Travel Service. This seems to have paid off, with an average of 2738 Chinese arrivals per month in 2011, a 34% increase on the figures recorded in 2010. Thanks to a series of seminars and road shows in southern and eastern China in 2011, interest has increased with awareness. Chinese movie stars, including Hong Kong’s Eric Tsang and mainland China’s Zhang Xinyi, have also filmed travel documentaries on Brunei Darussalam, sponsored by BTB.

RB’s daily flights to Hong Kong and three weekly flights to Shanghai, alongside an existing code-share with Hong Kong-based low-cost carrier Dragonair, has helped accommodate demand. However, immigration restrictions have not yet been resolved. Chinese tourists are only permitted visas on arrival if they are on a transit itinerary, which has largely limited Brunei Darussalam’s catchment to short stays as part of extended Borneo itineraries.

A shortage of Chinese-speaking tour guides, even amongst freelance contingents, has also affected local operators. There remain calls for a dedicated travel and tourism training facility in collaboration with the private sector; however, this has yet to materialise. Moreover, while ecotourism is a key segment in the country, this does not resonate with a Chinese market that prefers more commercial activities that Brunei Darussalam is largely unable to provide in terms of major brands or attractive local products.

NICHE MARKET: Yet these “limits” are inherent to the Sultanate’s brand and have the potential to appeal to certain demographics. As Wong told OBG, “Everything is very small here, very niche. Even the biggest things here are niche in global terms. But in that respect I think there is no other country that is comparable to Brunei Darussalam, and that is part of its advantage.” One factor that may help Brunei Darussalam is its proximity to neighbouring Sabah. Indeed, RB is actively promoting dual tours with the Malaysian state. Only 20-minutes away by flight, this strategy builds upon long-standing complementarities between the two destinations.

Hitting its stride in the past decade, Sabah is capitalising on a wealth of soft and hard adventure activities, wildlife and an expanding raft of high-quality hotels and nightlife that has led to its “official discovery” by the East Asian market. Chinese, Taiwanese and South Koreans now top Sabah’s overseas visitor arrivals from outside ASEAN. Brunei Darussalam, while targeting the same markets, is focusing on niche areas, promoting the Sultanate’s cultural and religious heritage, as well as its pristine environment to pique visitor interests for short stays. Sabah appears willing to work with Brunei Darussalam, with its tourism board seeking to collaborate with BTB and RB to promote the Sultanate as an additional destination for visitors to the Malaysian state.

KEY DESTINATIONS: Growing linkages with Sabah will likely benefit Brunei Darussalam, but the Sultanate is also focused on developing attractions at home. For now, the BTB’s primary efforts are directed at upgrading existing products, in part due to the fact that outdated land legislation has delayed the release of property for new developments. In the longer term, the addition of new attractions may well be necessary if the country is to boost its visitor numbers and promote private sector investment.

At present, the BTB tracks visitors to six principal places of interest in Brunei Darussalam, which attracted a total of 256,477 tourists in 2011. Visitor numbers at these locations have shown good growth over the past five years, but have plateaued more recently, indicating they are reaching capacity ceilings unless expansions are made. However, new products have been able to demonstrate significant potential. Since its 2009 debut, Kampong Ayer has seen 136% growth in visitor numbers.

The capital, Bandar Seri Begawan, is home to four of BTB’s top six destinations: the Royal Regalia Building, the Brunei Museum, the Malay Technology Museum and Kampong Ayer. These four attractions combined account for 95% of all tourist visits. Outside the capital, BTB also records visits to Tasek Merimbun Heritage Park and Ulu Temburong National Park.

RICH HISTORY: The BTB’s current trump card is the Sultanate’s rich Islamic history, which received renewed impetus in November 2012 with the launch of the bilateral Brunei-Malaysia Islamic Tourism Package in cooperation with Tourism Malaysia. This will promote exploration of the path of Islamic civilisation in South-east Asia, particularly in the Malay Archipelago. Capitalising on direct flights from Jeddah, Dubai and Jakarta, Brunei Darussalam is set to draw heavily on the Middle Eastern and Indonesian markets as the backbone of this initiative.

The Sultanate’s cultural appeal lies in its richly decorated collection of mosques that exert a regional draw for Islamic pilgrims, and to the royal family, whose Islamic dynasty dates to the 14th century.

Their patronage has also helped build a wealth of Islamic exhibits and artefacts that are showcased at the Sultan Haji Hassanal Bolkiah Islamic Exhibition Hall. Moreover, Brunei Darussalam’s more orthodox Islamic norms, including stringent halal regulations, are expected to appeal to Islamic markets in the region and further afield. Despite the potential, the BTB acknowledges that demand projections for Islamic-oriented products are unavailable, as visitor data on religious affiliation is not presently collected.

Beyond the capital, Ulu Temburong National Park and ASEAN-heritage site, Tasek Merimbun Heritage Park, are the primary destinations on which the country’s eco-tourism strategy is being positioned.

The 45-bed Ulu Ulu National Park Resort in Ulu Temburong, built and managed in collaboration with the Forestry Department and operated by Sunshine Borneo Tours, is the Sultanate’s principal ecotourism focus. Winner of an ASEAN Green Hotel Award 2010-11, it welcomed some 8761 visitors in 2011, a 10.3% increase on 2007. By comparison, the 7800-ha Tasek Merimbun Heritage Park, which is home to the country’s largest lake, fielded 2955 visitors in 2011.

GOING GREEN: While these figures are relatively small, the country’s rich ecosystems are a valuable asset and ecotourism plays a central and growing role, in the tourism sector. Indeed, the Sultanate’s potential as the “Green Heart of Borneo” received a welcome publicity boost when renowned tourism and travel photographer David Kirkland visited to shoot the country’s attractions for the BTB following a similar initiative in Papua New Guinea.

Brunei Darussalam’s rainforest is one of the best preserved in the world and, as part of the Heart of Borneo Council, the country has joined Indonesia and Malaysia in protecting its forests, which in the Sultanate’s case are relatively pristine. Some of these areas are still being explored, with scientists continuing to find new species.

According to preliminary research, the 18,491-ha Sungai Ingei Conservation Forest, for which the government is seeking UNESCO World Heritage Site recognition, has a higher degree of bio-diversity and ecological preservation than the forests found in neighbouring Malaysia and Indonesia. Indeed, the MIPR has delayed the release of baseline data for Sungai Ingei until it can deploy the Wildlife Protection Unit that it set up in 2012 to ensure the preservation of this ecological gem.

Specific areas of interest in the ecotourism segment include bird watching and diving. Regarding the former, the BTB is already planning bird-watching tours, a niche but high-revenue market segment, facilitated by forest canopy walkways such as those in Ulu Temburong. The BTB has also worked to support the development of diving (see analysis). The coastline is littered with wrecked boats and submarines, making for fascinating dive sites, and the coral is some of the best preserved in the world.

Regulations and safety parameters established by the MIPR have also spurred development in this segment. In 2012 Brunei Darussalam established marine protected areas (MPAs) that encompass 20% of its total maritime territories. While these areas are closed to commercial fishing, they are open to divers and the leisure market. Moreover, thanks to the absence of industrial fishing, biomass within these protected areas is projected to rise by some 450%.

HOTELS: As a result of recent changes in the aviation segment, revenues from corporate clients, food and beverage, and events have taken on greater importance, according to Shamsul Ahmad, the chairman of the Brunei Association of Hotels (BAH) and general manager of the Orchid Garden Hotel. There has already been increased competition, with hotels investing in more value-added services, including complimentary Wi-Fi, daily (non-alcoholic) minibar refills, shuttle services and laundry.

While hotels are investing in modernisation and renovations, an expansion of capacity is not expected before Brunei Darussalam proves it can attract sustainable throughput of tourist numbers and deliver strong revenue per available room (RevPAR) outside of special events. The BTB has recorded average occupancy rates of 48% across the 10 hotels for which it collects data. The BAH, receiving figures from six hotels, records an average occupancy of 40%, seemingly unchanged on 2010, with an average RevPAR of some BN$60-70 ($47-55).

Even the 518-room luxury resort, the Empire Hotel and Country Club, the jewel in Brunei Darussalam’s tourism crown, has seen a reduction in tourist arrivals. This has contributed to the decision to convert 65 rooms in the Waterfall Complex to serviced apartments from 2014, targeting expatriate residents and longer-term visitors. These residents would also have use of the resort’s exclusive country club and leisure facilities. The move will be complemented by the construction of marina facilities in 2014, which are intended to capture overspill from its nearest competitor’s facilities, the Sutera Harbour Resort in Sabah’s capital, Kota Kinabalu.

MICE: The relatively limited capacity of the Sultanate’s hotels has had an impact on its ability to develop the meetings, incentives, conferencing and exhibitions (MICE) segment of the market (see analysis). With a total of 3029 rooms and 3845 beds as of 2011, Brunei Darussalam would have difficulty attracting larger international conferences that can attract thousands of delegates. However, its facilities are well-suited for smaller regional events.

Location options for conference planners include the International Convention Centre, which has hosted a number of events, including the Asia-Pacific Economic Conference in 2000 and the ASEAN Tourism Forum in 2001, as well as a number of smaller business meetings. In addition, a few of the larger hotels in the Sultanate, including the Centrepoint Hotel and the Empire Hotel and Country Club, have meeting spaces as well.

While hotel capacity may be relatively limited, Brunei Darussalam has other features that may be attractive to conference organisers. These include the fact that Bandar Seri Begawan is a largely hassle-free and verdant city. Moreover, it offers nearby access to a number of ecotourism offerings, such as one-day excursions into the rainforest. Indeed, travel agents are well aware of the need to innovate to take advantage of the Sultanate’s strengths when hosting MICE events. Organisers regularly offer extra packages so delegates can also take in a trip to local ecotourism attractions, such as Temburong.

CRUISING ALONG: Brunei Darussalam’s niche appeal has not deterred its tourism players from pursuing the mass market, and their embrace of the cruise industry has seen marked success in recent years. Passenger arrivals increased 144%, from 13,879 in 2007 to 33,860 in 2010. However, arrivals at Muara Port dropped off in 2011, down to 15,197, but subsequently recovered in 2012 to 32,318 visits. Royal Caribbean International is set to begin tours in Brunei Darussalam from March 2013, which could further boost numbers. However, the existing capacity constraints and a lack of dedicated cruise ship facilities at what is primarily an industrial port continue to be challenges to growth for the local cruise segment.

LOOKING ABROAD: Uniquely, opportunity may in fact lie in outbound tourism. Tourism Malaysia documented that Bruneians spent more than BN$1.2bn ($935m) on their visits to their neighbour in 2011. This means that the average Bruneian spent BN$800 ($623) per trip. Comparatively, logged Malaysian visitors to Brunei Darussalam spent an average BN$750 ($584) per trip, although the reality is likely far less if accurate land border arrival figures were available. The trend is also expected to continue. Sarawak and Sabah alone recorded y-o-y increases in Bruneian arrivals of 30.7% and 6.2%, respectively, and outbound tourism has typically posted positive nominal growth of 3% per annum, according to Wong.

This trend may belie domestic opportunities. According to studies carried out by the Universiti Brunei Darussalam, around 80% of Bruneians visited Malaysia for purposes of recreation. Reproducing such recreational facilities in Brunei Darussalam, principally restaurants and shops, does not require government-led investment or large-scale training initiatives, only an availability of land – an issue the TMP intends to address.

OUTLOOK: Brunei Darussalam’s tourism sector retains substantial potential, but more will need to be done if the Sultanate is to realise it. The industry is currently going through a period of transition, and the final review of the sector’s performance in 2012 is expected to show the impact of changes in the aviation segment in particular.

Committed development from both the private and public sectors will be key to helping the tourism industry define itself and aid in the country emerging as a destination in its own right. Endorsement of the TMP should provide the necessary catalyst and could be a watershed moment, invigorating the sector with renewed stakeholder interest and new developments that leverage on the Brunei Darussalam’s natural and cultural resources. While it will remain a niche destination, this is also its competitive edge.