One year after the devastation of Typhoon Haiyan, the performance of the Philippine’s tourism sector is matching the resilience shown by those affected. In 2013 visitor numbers rose 9.5% to reach just under 4.7m. While slightly below the Department of Tourism’s (DoT) target of 5m in light of the damaging effect of the typhoon and a 7.2-magnitude earthquake that ravaged the popular tourist destination Bohol Island in the same year, both the authorities and industry stakeholders can take solace in the year’s results and feel confident about future demand projections.
Despite boasting a range of attractions and a reputation for hospitality on par with its regional competitors, the Philippine’s tourism industry has a long way to catch up with nearby powerhouses such as Thailand and Malaysia, which receive in excess of 20m international visitors annually and for which the aggregate and relative contribution of tourism revenue to GDP far exceeds that of the Philippines.
STATE OF AFFAIRS: Under the administration of President Benigno Aquino III, the sector has been identified as a vehicle to be prioritised for the positive impact it can have on inclusive economic growth, and efforts appear to be bearing fruit. The Word Economic Forum (WEF), in its “Travel & Tourism Competiveness Report 2013”, ranked the Philippines 12 places higher than in 2012 at 82nd overall and 16th regionally – the largest improvement of any country within the Asia-Pacific Region. One metric for which the Philippines fared particularly strong, achieving a ranking of 15th out of 140 countries, was the government’s prioritising of the industry. Indeed, thanks to an aggressive and highly successful global marketing campaign, brand awareness is on the rise. Momentum looks to continue as 2015 has been designated “Visit the Philippines Year” and is set to include a slate of events throughout the calendar year that commenced with a visit from Pope Francis in January 2015.
As an archipelago of some 7100 islands and not belonging to a continuous landmass, nearly 99% of foreign arrivals reach the country by air. As such, conversion of newly generated demand into actual arrivals is constrained by a lack of adequate transport infrastructure. Airport handling capacity into and within the country is insufficient, and the shortage of efficient sea and road connections between local destinations limits the ease of intra-country travel. This places a strong impetus and sense of urgency on all government departments to accelerate public works on key transport projects and create a conducive environment for private sector participation considering that public finances are strained. The DoT claims that around half of all government infrastructure projects are aligned towards improving access to the country’s cluster tourist destinations.
A MATTER OF RANKINGS: According to the World Travel & Tourism Council (WTTC), the direct contribution of travel and tourism to GDP in 2013 was P472.3bn ($10.63bn), making it the fourth-largest foreign exchange earner after exports, overseas remittances and outsourcing. This made up 4.2% of the total economy, a ratio that is forecast to remain steady, with the WTTC projecting the sector’s economic contribution to increase by 5.6% per annum to reach P843.3bn ($18.97bn), or 4.3% of total GDP, by 2024.
The Philippines ranked in the top quartile (35th) globally out of 184 countries surveyed in terms of the absolute value of the tourism sector, but trails regionally behind Thailand (14th), Indonesia (16th), Malaysia (19th) and Singapore (26th). In relative terms, it ranks only 70th globally, and regionally falls behind Vietnam and Cambodia, as well as Indonesia, Malaysia and Singapore. With the exception of Thailand, which faced stagnant growth in 2013 due to political unrest, the Philippines’ tourism industry experienced the lowest growth rate in 2013 among ASEAN members.
In terms of employment generation, over the course of 2013 travel and tourism directly supported 1.2m jobs (3.2% of total employment). This is expected to rise by 2.5% per annum to reach 1.6m jobs by 2024.
SHIFTING GOALS: Since the Aquino administration took office in 2010, year-on-year (y-o-y) growth in foreign arrivals has hovered around the 10% mark. The DoT is aiming for growth to continue in the double-digit range until the administrative term ends in 2016. The administration is seeking to achieve the ambitious target of hosting 10m foreign visitors that year, which would be more than double the volume being handled at present. The WTTC’s projection is more modest at just under 8m foreign arrivals by 2024.
Given that much of the necessary infrastructure is not yet in place, realising the 10m visitor mark by 2016 will be a challenge. “The industry’s focus should be rather to boost tourism receipts by increasing the average length of stay,” said Benito C Bengzon Jr, assistant secretary at the DoT’s Market Development Group. “One could easily spend a month in the country taking in a diverse set of unique sights and activities.” Motivating visitors to stay longer and travel to more locations within the country, he said, is the more immediately achievable path to growing tourist receipts, and helps compensate for inadequate supply. “Over the last few years we have been seeing more equitable distribution of visitors throughout the archipelago and will see more as regional infrastructure is further developed,” Bengzon told OBG.
DoT figures show that the average length of stay for long-haul arrivals was 10 days in January-October 2014, an increase of two days over the same period the previous year. In June 2013 the Bureau of Immigration (BoI) introduced an allowance for foreigners meeting certain specifications to receive a six-month tourist visa. According to Bengzon, seasonality is becoming less pronounced as the country draws tourists from a wider variety of source markets that have differing outbound holiday periods. The government is in the midst of considering altering the academic calendar to coincide with the US rather the Asian school system. If this takes place, seasonality could be balanced even further as East Asians, who collectively make up the largest source market, would be visiting during periods that do not compete with the busier domestic holiday season.
ABUNDANT ASSETS: The Philippines jumped 12 spots to 82nd place in the WEF’s 2013 tourism competitiveness rankings. Areas in which it ranked highly included the strength of its natural resources (44th), price competitiveness (24th) and government prioritisation of the industry (15th), with the report also revealing that the Philippines is first in the world in terms of government spending on the sector as a percentage of GDP. “Today, the world has more of an appreciation for us and we have a more compelling proposition. The proof is in the awards we have been receiving for our attractions and marketing campaign. We have become a serious player,” said Bengzon.
Recent accolades bestowed include travel guide publisher Lonely Planet placing the Philippines on its list of top 10 countries to visit in 2015, while luxury travel magazine Condé Nast Traveller’s “Readers Choice Awards” voted Palawan and Boracay 1st and 12th on its list of the world’s top islands. With over 7100 islands and a coastline of 36,000 km, the Philippines has already garnered a reputation as one of the top “sea and sun” destinations in the world.
The DoT is also looking to promote non-beach natural and historic attractions to showcase the variety of activities on offer. These include the Banaue Rice Terraces in Luzon province and the Puerto Princesa Subterranean River National Park, both of which have been awarded UNESCO World Heritage Site status, as well as the Spanish colonial town of Vigan in Ilocos Sur, which has UNESCO status and is vying to be named one of the New Seven Wonders of the World. Sports is another potential source of growth. “While international sporting events are valuable for boosting international tourism, local and regional events offer opportunities to build up domestic tourism, which is just as, if not more, important,” Ricardo Garcia, Chairman of the Philippine Sports Commission, told OBG.
SPREADING THE FUN: In 2012 an international, social-media routed promotional campaign centred on the slogan “Its more fun in the Philippines” was launched and has so far received much praise for its creativity and effectiveness. Marketing intelligence service company Warc awarded the initiative third place in its ranking of the top 100 global campaigns for 2013, stating that “using Filipinos themselves as the inspiration for the campaign … [it] captured the attention of the whole nation – and the world.”
The second phase of the campaign, which took effect over the course of 2014, transitions from national to destination-specific marketing. Boracay, Davoa, Cebu and Manila are each receiving their own international television commercials that, while aligned to the “more fun” theme, showcase and capture what is unique about each destination. Boracay is being branded “Asia’s 24/7 island”; Davao is a place for nature, eco-adventure, wellness and relaxation; Cebu is being promoted for its pristine diving and musical heritage; and Manila is being marketed as a “Capital of Fun” by virtue of its cosmopolitan shopping, nightlife, art, culture and business features.
CONTINUING MOMENTUM: With 2015 having been designated as “Visit the Philippines Year”, the DoT will be hosting 35 events throughout the calendar year. Festivities kicked off with a four-day visit by Pope Francis in late January 2015 to coincide with World Youth Day, and in November the country will be hosting the Asia-Pacific Economic Cooperation ministerial meetings and leaders’ summit. Scheduled for April 2015, Madrid Fusion Manila is being dubbed by the DoT as the “biggest culinary event in the world”.
“The success of the ‘More Fun’ campaign, alongside the Visit Philippines events being staged in 2015, affords the private sector a real opportunity to piggyback on the momentum being created and to develop our own products and events that match up with the themes and message,” John Paul M Cabalza, the president of the Philippines Travel Agency Association (PTAA), told OBG.
MAKING A GAME OF IT: Within Manila, a substantial portion of new stock will be dedicated to hotels in and around newly established entertainment and gaming districts. Entertainment City, a government-driven project set on 8 sq km of reclaimed land, is expected by Colliers to be the location for just over half (56%) of the metropolis’ new rooms. Supplementing the city’s prospects of emerging into a premier regional hub for gaming is City of Dreams. Undertaken by the local subsidiary of Hong Kong’s Melco Crown Resorts, the $1.3bn development that opened in February 2015 includes six hotel towers with 950 rooms that are managed by internationally recognised names such as Nobu and The Hyatt. A few miles away in Pasay City, situated adjacent to NAIA, another casino resort, Resorts World Manila, has been operating and gaining popularity since 2010. Anchored in terms of accommodation by a Maxim Tower and Marriott, properties slated to be managed under the Hilton and Sheraton brands are presently being constructed.
Looking to the future, it appears that another major international gaming operator could be joining the fray. In late October 2014 the senior management of the US’s Caesar’s Entertainment announced that it met with President Benigno Aquino III and other top officials in an effort to secure permission to set up within Entertainment City. The government has stated that any interested casino licensees must now commit to a minimum of $1.5bn for their project, $500m more than what was required from the three flagship investors that have committed to the complex to date.
DOMESTIC AFFAIRS: As the country’s populace is approaching 100m citizens, which means that the country has the second-largest population in Southeast Asia, the Philippines would be remiss not to also focus efforts on expanding its domestic travel base, which in 2013 was responsible for 76.5% of tourism receipts, according to the WTTC. The DoT is also looking to improve travel within the country by Filipinos themselves by 8% y-o-y to reach 52m in 2015, while also increasing domestic travel spending by 14% to reach a targeted P1.41trn ($31.73bn).
In 2010 there were only around 22m domestic tourists, and the near doubling since then in volume has been attributed to rising levels of discretionary income and consumer confidence over a period that has also coincided with the launch of domestic budget airlines competing aggressively on fares. “Domestic tourism now plays an important role in our tourism industry, and we encourage our fellow Filipinos to see the rest of the country as part of each individual’s contribution to nation-building,” Cabalza told OBG.
Additionally, with more than 4m Filipinos living in the US and Canada alone, there is a large segment eligible for visiting friends/relatives visas that the DoT is encouraging to spend more in and visit more of the country. “We tend to market to this segment in much the same way as we do to foreigners, as most are now second- and third-generation immigrants. Ironically, the buzz and excitement generated by non-expatriate Filipinos oversees makes the expatriates appreciate their country of origin even more and they are now staying longer and visiting destinations outside of where their relatives reside,” said Bengzon.
When assessing the split of tourism spending between the leisure and business segments, the former accounts for 71.1% of receipts based on WTTC figures. Both segments are expected to concurrently rise to match the pace of GDP growth – estimated to be between 6% and 7% – as the country expands as both a business and leisure destination.
SOURCE MARKETS: South Korea, responsible for just under a quarter of foreign arrivals, remained the top source market in January-October 2014, supported by a new air service agreement between the two countries. Next came the US (14.97%), followed by Japan (9.67%) and China (8.95%), with Australia, Singapore, Hong Kong, Canada, Malaysia and the UK rounding out the top 10. The prominence of visitors from North-east Asia is partly to do with proximity. With flight times from most major East Asian cities taking less than four hours and an increasing choice of flight options, a visit to the country can easily coincide with a reasonably affordable long weekend visit.
According to DoT figures, in 2013 Canadians were the highest spenders, with an average outlay of $1393 per visit, followed by Australians, Germans, Americans and British, something that intrinsically makes sense as longer-haul visitors will be more inclined to spend more time per visit to offset the lengthier travel time required to reach the destination. For Cesar Cruz, president of the Philippines Tour Operators’ Association (PHILTOA), another marked difference between Asian and Western visitors is a higher propensity for the former to opt for packaged over independent itineraries. “Chinese, Koreans, and to a lesser extent Eastern Europeans, book through tour operators in their home country. While this benefits the hotels and airlines, local operators do not see a piece of the pie,” he told OBG.
ASEAN INTEGRATION: In 2015 ASEAN will enact measures towards the formation of a single market bloc, presenting both opportunities and threats to the Philippines’ tourism industry. The freer movement for ASEAN citizens between member countries should improve the ease and lower the costs of intra-regional travel. “The Philippines current share of intra-ASEAN travel is the lowest of the grouping, so there is plentiful room to grow,” Bengzon told OBG. For Cruz, an untapped opportunity within ASEAN exists in capturing a greater share of Muslim tourists from Malaysia and Indonesia. “At the moment, there are only a few hotels and restaurants in Manila with halal catering and certification. We could do more, especially on the islands,” he told OBG.
Guiller B Asido, assistant chief operating officer for the DoT’s Tourism Infrastructure and Enterprise Zone Authority, agrees with others that the ASEAN market offers potential, but cautions that the boost in visitors will not be on par with other members due to comparative logistical constraints. “We will not benefit from cross-border flows in the same way landlocked ASEAN countries will,” Asido told OBG.
The DoT has been lobbying the Department of Foreign Affairs to introduce a single visa scheme among ASEAN’s 10 member states that is similar to Europe’s Schengen visa. “When you have a single visa, the tendency for tourists, for example, is to say, “I’m in Thailand, but my visa is good for 10 countries, so I might as well go through all 10’,” Ramon Jimenez Jr, secretary of tourism, told the local press. Due to technical and security issues, the establishment of such a system is not likely to reach fruition for a few years. But in the meantime, the Philippines has taken steps to liberalise its own visa regime by allowing more nationalities, such as Russians, to receive a visa on arrival, while allowing others, such as Indian nationals, to enter the country should they have successfully acquired visas to places such as the US and Australia.
STAFF WANTED: Board an international cruise line or check into a hotel in Singapore or any Gulf country and there is a chance one will find Filipino staff there. “Our hospitality trait is innate and something that comes naturally to Filipinos. That, along with strong English-language proficiency, makes us a popular choice as hospitality workers abroad,” said Cabalza. While this reputation bodes well for foreign remittances, ASEAN integration could further the talent drain, as restrictions on employing Filipino nationals in other ASEAN nations will be liberalised. “In places like Thailand and Indonesia, where English is not well spoken, there will be a particularly strong demand for Filipino staff, without mentioning their genuine and natural hospitable attitude,” Laurent Lamasuta, president and CEO of El Nido Resorts, told OBG.
For Cruz, despite a language and service mentality advantage, the country has catching up to do when it comes to the basic education of entry-level workers – a factor that will require integration with ASEAN common standards. “We are lagging behind our Asian neighbours since we have just started our K-to-12 system,” Cruz told OBG, referring to recent reforms that will add an extra two years to secondary education. However, Bengzon is optimistic that as the industry grows, more opportunities for employment at home will reduce the temptation for Filipinos working in the hospitality trade to pursue employment abroad. But he cautions that inconsistent levels in quality and training between hospitality staff in the major cities and the provinces could dent the prospects of ensuring that a visitor to the country has a consistent experience throughout.
MAKING PLANS: Bolstering human capital, both in terms of numbers and skill sets, forms one of the three pillars of the National Tourism Development Plan. Running from 2011 through to 2016, the three components of the plan entail: developing and marketing competitive tourist products and destinations; improving market access, connectivity and destination infrastructure; and improving institutional governance and human resources. Under the first pillar, the strategic tourism products to be promotion include: nature and cultural tourism; sun and beach; leisure and entertainment; the meetings, incentives, conferences and exhibitions segment; health, wellness and retirement; cruises and nautical activities; diving and marine sports; and education tourism.
CRUISE CONTROL: While ample coastline, an island geography and a proliferation of nationals employed as crew members on leading lines throughout the globe places the Philippines in a prime position to establish a flourishing cruise market, this segment has been underrepresented due to a lack of deep sea docking infrastructure, as well as challenges related to the threat of piracy. The DoT indicates that 2013 saw only 17 cruise ships make a port of call in the country, a figure that was set to jump to 23 in 2014. Carnival Cruise Lines has announced that it will start including a selection of Philippine islands in their route offerings in 2016, while the Royal Caribbean and Norwegian Cruise lines are also interested in developing the country as a prime cruise destination.
A HEALTHY RETIREMENT: Hard pressed to match Thailand and Singapore, which have established themselves as the region’s top players in the cosmetic and invasive treatment markets, respectively, the DoT is in the process of compiling a study to uncover niche segments that the country should focus on to secure a competitive advantage in the medical tourism field. Boasting qualified physicians and a reputation for producing highly qualified and trained nurses, the main shortcoming cited by those OBG has spoken to that limits the prospects of expanding further into mass-market medical tourism stems from a lack of globally recognised facilities. “While we have very good hospitals, the link between travel agents and hospitals has to be improved so that agents can help sell the services. Wellness tourism proves much easier to market and is something the Philippines is already associated with,” Cabalza told OBG.
As English is widely spoken, relatively low cost of living, a variety of entertainment options and a general friendliness towards expatriates, the Philippines has emerged as a popular retirement destination. In recognition of the prospects for attracting more retirees, the BoI offers a special resident retirement visa that is aimed mainly at pensioners, but is also at those as young as 35 years of age who are eligible as long as they can prove sufficient income.
STUDY ABROAD: Due to strong business interests, South Koreans make up the largest expatriate community in the Philippines, and many South Korean families opt to send their children to the Philippines at some point for language instruction due to strong English proficiency levels there. “As English is our second language, in addition to the proximity we offer, Korean and Chinese citizens prefer to come here to learn the language as they find the instructors to be more patient,” Bengzon told OBG. “For the same price as studying in the UK, Australia or the US one can get one-on-one instruction instead of in a classroom setting. And depending on your lifestyle preference, you can study in a cosmopolitan environment like Manila, or get a beach experience in a place like Cebu.”
SAFETY & SECURITY: Somewhat dampening the positive sentiment generated by the successful marketing campaign and upbeat demand projections has been a series of kidnappings in the archipelago’s south. These and other incidents have led some governments in key source markets to issue warnings or outright travel advisories against travel to the Philippines. The source market most affected has been that of China. Following a travel warning issued by Beijing on September 12, 2014, Boracay, a popular destination for Chinese visitors, saw monthly arrival numbers fall from 18,479 in August to less than 7000 in September, prompting carriers including Cebu Pacific and AirAsia to either suspend or reduce intra-country flights. Though most observers concur that political gesturing linked to tensions over territorial disputes has played a contributing factor in the Chinese government’s rhetoric over security concerns, with visitors from the country accounting for almost a tenth of the Philippines’ tourism intake, the negative impact is something of a concern for industry players.
OUTLOOK: Amidst all the hype surrounding the impressive economic expansion that is being fuelled by the business processing outsourcing sector, tourism and other contributors poised for further growth can occasionally glanced over by outside analysts. However, this is far from the case for the current administration, and the sector has been prioritised as a key growth pillar. With plentiful natural endowments and a cultural propensity for service and hospitality, the Philippines is fortunate to possess assets that serve as demand drivers. Keeping the tourism sector back from reaching its full potential is handling capacity, which is in the process of being ramped up, but has a ways to go in providing the infrastructure to ensure more seamless and efficient movement and to host visitors throughout the Philippines various islands.
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