The Philippines’ tourism industry weathers the storms

While two major natural disasters took their toll on the Philippines’ tourism industry during the latter part of 2013, strong overall demand from both the domestic and international markets helped the industry edge close to double-digit growth for the full year.

A drive to develop the increasingly popular ecotourism segment in areas hit hardest by October’s 7.2 magnitude earthquake and Typhoon Haiyan the following month, combined with increased capacity, should pave the way for another positive performance from the industry in 2014. However, infrastructure constraints and a high aviation tax could weigh on future growth.

A total of 4.6m foreign tourists visited the Philippines in 2013, up 9.56% on last year’s international arrivals, according to the Department of Tourism (DoT). The figures showed that international tourists generated $4.4bn in revenue.

Regional markets notched up the strongest growth, with visitors from South Korea rising 13% y-o-y on the back of new air service agreements between the two countries. Tourists entering the Philippines from the republic accounted for 25% of last year’s total arrivals, while those from the US made up 14.4%. Japan and China followed, with market shares of 9.2% and 9.11% respectively.

The domestic tourism market is also expanding, with visitor numbers reaching 37.5m in 2011, exceeding the DoT’s initial target of 35.5m well ahead of its 2016 deadline. Speaking at the 21st Travel Tour Expo, held in mid-February, President Benigno Aquino said the country hoped to surpass a revised target of 56.1m domestic tourists by 2016.

Eco draw

The ecotourism segment, in particular, is seen as ripe for development. In February, the Department of Environment and Natural Resources (DoENR) allocated PH1bn ($22.4m) for mangrove and beach forest development in areas hit by Typhoon Haiyan. The funds will also support work in the central provinces of Bohol and Cebu, which were badly affected by October’s earthquake.

Speaking at the fifth annual World Ecotourism Conference, which was held in the Philippines, the tourism secretary, Ramon Jimenez Jr, said the country’s natural sites would play a key role in the industry’s development.

“Ecotourism will continue to demonstrate robust growth in the next two decades, as more sophisticated types of travellers evolve,” he told the conference.

Addressing challenges

However, the immediate impact of Typhoon Haiyan, alongside longer-term challenges, led by gaps in infrastructure, a shortage of hotel rooms and aviation industry taxes, has prevented the Philippines from meeting its target of welcoming 5m international tourists annually.

In February, the Tourism Congress, a private sector organisation which helps the government steer sector policy, called on the Aquino administration to reform tax policies in the aviation industry as a means of supporting tourism growth.

While the Philippines’ internal revenue code allows international carriers to be exempt from excise taxes on fuel purchases, the Supreme Court ruled in 2012 that manufacturers or suppliers of jet fuel were not. According to the sector association, this additional cost is passed on to consumers.

“Airlines are part of our air infrastructure. To enhance this air infrastructure environment, jet fuel being used by international carriers really shouldn’t be taxed, because we have a reciprocity arrangement with different countries,” Aileen Clemente , vice-president of the Tourism Congress, told local media.

Room service

Hotel rooms are also in short supply. Last year, the DoT called on hospitality developers to increase the number of beds, anticipating a gap of 32,023 rooms by 2016. The country currently has 80,162 rooms available, while demand stands at 121,875, according to DoT figures.

Analysts point to a huge investment earmarked by major industry players for developing new hotels in the Philippines, which should go some way to reducing room shortages. Shangri-La, Conrad, Westin, Hilton, Marriot and Sheraton are just some of the names targeting the Philippines for expansion during the next three years, according to a 2013 market overview published by Colliers International.

Colliers expects up to 4300 rooms to become available in the market annually between 2014 and 2017, marking the highest growth since 1988. A total of 1372 new rooms became available in Manila last year, bringing the inventory to 17,517.

“We see immense potential for the country, which has a rapidly emerging gaming and entertainment market that is backed by demand from local residents, as well as the increasing number of international tourists,” Clarence Chung, chairman of Melco Crown (Philippines) Resorts Corporation, told OBG.

While flight costs remain high and the problem of room shortages will need addressing, investors have shown themselves keen to expand in the Philippines, supporting the country’s bid to find its niche against a backdrop of fast-approaching ASEAN integration.

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