The Philippine tourism sector is seeking to diversify in order to support growing visitor numbers and encourage sustainability

Tourism in the Philippines has seen considerable growth in recent years, with over 7000 islands and an abundance of rich cultural traditions making the archipelago a regionally competitive destination. There has been a renewed focus on sustainable tourism following the closure of popular coastal destination Boracay for six months in 2018. This shone a light on other destinations and allowed the sector to diversify its offerings to cater to a wider array of tourists, as well as boost the country’s reputation for being sustainable and environmentally aware. The government’s goal of attracting 12m tourists per year by 2022 is still some way from being realised, but the emergence of new coastal and island destinations, combined with the growth of medical tourism, cruise tourism, and the meetings, incentives, conferences and exhibitions (MICE) segment, should help to achieve this figure in the coming years.

Structure & Oversight

Tourism is a priority sector, given its potential to drive economic growth and generate employment. The Department of Tourism (DOT) is tasked with overseeing the industry and is its main regulator. The National Tourism Development Plan (NTDP) 2016-22 is the industry’s overarching policy and development framework. The fundamental aims of the plan are to increase the competitiveness of the tourism industry, as well as promote sustainability and social responsibility. Sitting under the DOT is the Tourism Infrastructure and Enterprise Zone Authority (TIEZA), which is responsible for tourism enterprise zones (TEZs). TEZs are designed to attract public and private investment through fiscal and non-fiscal incentives, such as six-year income tax holidays, and tax and duty free exemptions for importing goods and services. “The development of tourism should be organised into clusters depending on what the different areas can offer and the type of visitors it can attract,” Pocholo D Paragas, COO of TIEZA, told OBG.

The Tourism Promotions Board (TPB) is another key authority, responsible for designing promotions and delivering marketing campaigns. In 2018 the TPB attended 52 domestic and international events to promote the Philippines’ tourism offerings, and provided assistance in the planning of another 336 events, including bids for events in the MICE segment.

Legal Reforms

The government has recently implemented reforms to improve the safety of tourists. In February 2019 House Bill 8981, also known as the Tourist Protection and Assistance Act, was approved by the House of Representatives at the second reading stage. Under this legislation, an intergovernmental task force will be established for the protection and assistance of both domestic and international tourists. The bill also seeks to adopt uniform standards of signage, prepare and disseminate multilingual tourism information, and set up a toll-free telephone assistance number.

The government has also taken steps to promote sustainable tourism. In February 2019 the DOT called for regional tourism councils and local government units to accredit primary tourism enterprises, such as travel agencies and accommodation providers, with licences or permits to operate, as is required under the Tourism Act of 2009. Accreditation certifies that enterprises comply with minimum standards of operation, and ensures the adherence of environmental regulations.

Following the success of the closure and rehabilitation of Boracay (see analysis), similar initiatives are being rolled out in Panglao, El Nido, Siargao and Manila Bay. The rehabilitation programme involves cleaning the area, disposing of litter, improving water quality and taking measures to reduce future damage.

Visitor Growth

Despite concerns that the closure of Boracay would impact the country’s image, the number of visitors to the Philippines continues to increase. In 2018 the country saw a record 7.1m arrivals, a 7.7% increase on the 6.6m visitors in 2017. This was in spite of lower-than-expected arrivals in August and October, coinciding with Boracay’s closure between April and October. The country has set a target of 8.2m tourist arrivals for 2019, which Bernadette Romulo Puyat, secretary of the DOT, is confident can be achieved. There were fears that tourist arrivals would be impacted by the Jolo Cathedral bombing in Mindanao in January 2019 and the UK’s subsequent advisory against travelling to southern Cebu, which was lifted the following month. However, as travel agencies have diversified and marketed the country’s tourism offerings, the 2019 target for tourist arrivals appears to still be within reach.

The composition of travellers to the Philippines remains largely unchanged. The main source market in 2018 was South Korea, accounting for approximately 1.6m arrivals. This was followed closely by China with 1.3m tourists, which marks a 29.6% growth in arrivals compared to 2017 figures. The fastest-growing source markets for the country are generally those in Europe, such as Ireland, the Netherlands and Norway. In May 2019 the DOT signed an agreement with France to establish a joint committee to develop tourism flow and knowledge exchange between the countries. However, the absence of direct flight connections to Europe is hindering progress, with a Philippines Airlines flight to London the only direct route as of May 2019. “The strengths of the Philippine tourism sector are the country’s geographical location, positioned between India and China, and internationally minded English-speaking population,” Robert Yupangco, CEO of zoo and theme park company Zoomanity Group, told OBG.

The focus on sustainable tourism has raised the question of whether destinations in the Philippines are able to cater to growing arrival numbers while protecting the environment, with concerns raised about overcrowding and constraints on resources. For example, the mountain resort city of Baguio in Northern Luzon has sufficient water supply and public services to cater to the resident population. However, the city’s daytime population doubles in size to over 725,000 during peak holiday periods, according to a February 2019 report by the National Economic and Development Authority (NEDA). Therefore, it will be key to assess the capacity of major tourism destinations, and develop road connections and waste management systems that can cater to the growth in visitors. At the opening of a heritage park in Ilocos in April 2019 Puyat asked local governments to prioritise the protection of the environment over generating profit in order to ensure tourist destinations can be enjoyed by future generations.

Air Routes

Developing transport infrastructure is a key focus of the NTDP. The country has made considerable progress in increasing international air traffic, securing 11.3m air seats in 2018, according to the Official Aviation Guide. However, boosting air connectivity remains a challenge. There is an over-reliance on Manila’s Ninoy Aquino International Airport (NAIA) as the primary point of entry, which has led to the airport operating over capacity and suffering from congestion. To combat this, in 2018 the DOT’s Route Development Team facilitated the opening of 40 new international air routes – increasing air seat capacity by 1.6m – while also developing facilities at airports in Cebu, Davao, Cagayan de Oro, Clark and Bohol. Moreover, there are now an increased number of direct flights to a wider range of destinations, with new routes and greater flight frequency to India, Japan and China.

While regional airports are being developed in different provinces, expanding major airports is also vital to support increased passenger traffic. “An efficient central airport for international and domestic connections is fundamental,” Bas Hogendorf, country manager for Air France-KLM Philippines, told OBG. “If no other airport is being developed in Manila, NAIA needs to be upgraded to make it easier to connect travellers all over the country after landing in the capital.”

San Miguel, one of the country’s largest conglomerates, has proposed the creation of an alternative airport in Bulacan, with the aim of decongesting Manila and generating employment. The project was approved by NEDA in April 2019 and the Swiss challenge period began in the same month, setting a deadline for competitors to submit their documents by June 23, 2019. The project is expected to accommodate 35m passengers per year during the first four years of construction, and 100m per year once the airport is fully completed.

Cebu is also emerging as a potential location for a new airport, having hosted the Asia Aviation Summit, organised by the Centre for Aviation, in 2018 and Routes Asia in March 2019. These developments paint a promising picture for air transport in the future. “With 10m Filipinos working abroad and significant opportunities in tourism, the aviation industry has great potential for growth in the coming years,” Adil Al Zadjali, country manager for the Philippines at Oman Air, told OBG.

Expenditure & Employment

According to the World Travel & Tourism Council (WTTC), international visitors spent P379.7bn ($7.1bn) in 2017, the most recent year for which data is available. The WTTC predicts that this figure will grow by 5.4% per year over the next decade, reaching P665bn ($12.4bn) by 2028. In February 2018 international visitors spent an average of P6576 ($122) per day, with an average trip duration of 9.4 nights. Domestic tourism is also on the rise, with the Philippines enjoying the third-highest annual growth rate in the world in domestic visitor spending in 2017. This amounted to P2.6trn ($48.4bn), representing a 25.5% increase on the previous year.

The hotels and restaurant subsector continues to drive consumer spending, growing by 6.8% in the first three quarters of 2018 despite increased inflation. According to the WTTC, in 2017 the direct contribution of travel and tourism to the economy was P1.4trn ($25.7bn), representing 8.7% of GDP, below the global average of 10.4%. This is forecast to have risen by 6.2% in 2018 and to increase by an annual average of 5.7% through to 2028. The WTTC ranked the country 13th in the world for absolute growth in tourism between 2011 and 2017, measured by contribution to GDP, international visitor spending, domestic spending and capital investment. The sector continues to be key in providing employment: there were 2.3m direct employees in the travel and tourism industry in 2017, accounting for 5.8% of total employment. This number was expected to increase to 6.6% in 2018. Forecasts for 2028 project that the sector will directly employ 3.2m people, which would equate to an increase of 2.6% per year.

Hotels

In anticipation of growing demand, the hotel segment is currently undergoing expansion. In Metro Manila alone 2700 new hotel rooms were completed in 2018, and a further 1800 rooms are expected to be completed annually between 2019 and 2021, according to a report by real estate consultancy Colliers International. The Newport area near NAIA has also been a priority for development, with the Hilton Manila and Sheraton Manila opening in 2018. The city of Clark is also expanding its accommodation offerings, in order to cater to increased arrivals with the completion of the modernised Clark International Airport. Additionally, Marriott International is planning to triple its hotel portfolio in the Philippines by 2023, as part of wider expansion plans in the Asia-Pacific region.

The continued increase in new rooms has put average daily rates (ADR) and hotel occupancy rates under pressure. Hotel occupancy in Manila declined marginally in 2018 from 70% to 69% as increases in arrivals were offset by the completion of new hotels. While hotels in Quezon City and Fort Bonifacio in the capital recorded ADR growth of 1-4%, the ADR for hotels in the Manila Bay area fell by 2-3%. Foreign-branded hotels were most affected by increased supply, as domestic tourists and those arriving from within Asia preferred to stay at locally known chains. Occupancy rates are expected to remain stable in 2019 as new hotels are completed.

The growth in tourism has led to higher occupancy rates in destinations outside of Manila. For example, occupancy rates in Baguio, a city 1500 metres above sea level, reached 98% in the winter months, as tourists visited the mountain resort in search of a cooler climate. The temperature in the city averages 18-20°C throughout the winter, compared to averages of 26-28°C in the capital region during the same season. Improvements to infrastructure and the continued rise in arrival numbers should support the sector’s expansion and sustain healthy occupancy rates in the coming years.

Niche Markets

Sustainable tourism has been the government’s focus since the rehabilitation of Boracay, and the authorities are now appealing to stakeholders to play their part in ensuring the industry’s development includes measures for environmental protection. Sustainable tourism is an important part of the NTDP, and in March 2019 local media reported that the DOT is seeking financial support from the World Bank and the Asian Development Bank (ADB). Other areas for development under the NTDP include MICE; marine sports; beach and mountain destinations; and tourism for health, wellness and medical needs.

In terms of the business segment, in 2018 the MICE Roadmap 2030 was launched with the aim of establishing the country as a leading international destination for MICE. It was developed with inputs from the DOT, TPB, the Philippine Association of Convention/ Exhibition Organisers and Suppliers, and the Board of Investments at the Department of Trade and Industry. The DOT launched a P50m ($930,000) marketing plan to position Iloilo as the Philippines’ top MICE destination, to be implemented by 2021, with the city’s connectivity, growing facilities and cultural heritage seen as competitive advantages. Bacolod City, which hosted the MICE Conference 2018, is also investing resources to develop its profile as a destination for meetings and events.

The Philippines has hosted a number of major international events in recent years, including the APEC Summit 2015, the ASEAN Summit 2017 and the ADB Annual Meeting 2018. With the hope of hosting more high-profile meetings and events in the future, the TPB is considering appointing MICE representatives in Europe and the Middle East.

The Philippines is also growing as a destination for sports tourism, having been recognised as the preferred diving destination at the ASEAN Tourism Forum 2019, with visitors attracted by the rich biodiversity and marine life. The Philippines will also host the SouthEast Asian Games in November-December 2019 (see analysis). Preparation for the games has required largescale infrastructure development, which will enable the country to host other major sporting events in the future. Media coverage of the games will also provide the opportunity to showcase the country and its tourist attractions on a global stage. The event will boost the economies of areas outside Metro Manila, as well as highlight the opportunities available in these regions. Clark City will host the majority of the games, followed by Metro Manila and Subic, with some events also hosted in the Batangas, La Union and Tagaytay areas.

Medical tourism is also expanding, with the government and private sector working together to promote the Philippines as a destination offering modern technology, international standards of health care, value for money, and a hospitable and English-speaking workforce. According to the International Healthcare Research Centre, which ranked the country 19th globally in its Medical Tourism Index for 2017, the Philippines attracts some 250,000 overseas patients per year.

Cruise tourism is another area for potential growth. In 2017 a total of 197,950 cruise passengers travelled to the Philippines, with considerable scope to increase this number. The National Cruise Tourism Development Strategy, which was created in 2016, aims to have 300 ports of call to serve up to 656,635 cruise passengers per year by the end of 2022.

Marketing

In 2019 the DOT relaunched the “It’s More Fun in the Philippines” campaign, promoting a number of new travel destinations as part of a diversified offering to cater to different markets. The campaign comes with a new logo rooted in traditional motifs and colours, highlights sustainable tourism, and uses crowdsourcing for all photos and videos.

This followed the DOT’s relaunch of the “Bring Home a Friend” programme in late 2017, which ran until October 2018. The initiative targeted young Filipino expatriates and encouraged them to introduce a friend to the country, for the chance to win prizes such as free flights, accommodation and travel packages.

Outlook

After years of rapid growth, the Philippines is now developing key infrastructure to accommodate growing visitor numbers and diversify its offerings, while also ensuring environmental protection. Although progress has been made, more needs to be done to upgrade roads and public transport networks to ease domestic travel and encourage tourists to extend their stay. In addition, projects to improve the destination’s connectivity will help to boost its international appeal.