Upgrading and developing new transport and hospitality infrastructure is essential to unlocking the Philippine tourism sector’s undeniable growth potential. Without adequate infrastructure to move people into and within the country, and the hotel and leisure offerings to accommodate and entertain them, many of the attributes that make the industry primed for sustained expansion could be negated. With public coffers strained and multiple sectors competing for state funding, the government is looking to hand over development, management and maintenance responsibilities to the private sector.

And with a strong assurance of pent up demand, there is a sound business case for prospective investors. “We are not interested in operating and managing tourist facilities. We will provide support infrastructure and incentives, but the push will come from the private sector,” Guiller B Asido, assistant chief operating officer of the DoT’s Tourism Infrastructure and Enterprise Zone Authority, told OBG.

ROUTES REVIVAL: Geographic barriers and infrastructure shortcomings are invariably sighted as the main impediments to meeting the ambitious tourist arrival growth target of 10m by 2016. And while progress is being made to ramp up the required supply-side infrastructure, the to-do list will take some time until completion. Some recent good news came in April 2014, when the EU took Cebu Pacific Air off its list of banned airlines. This move was followed by the US’s Federal Aviation Authority relaxed limits on the number of flights from the country.

“For several years, our airlines had limited direct access to the EU and US. Being able to land in key aviation gateways like London will make a huge difference in opening up hub and spoke traffic,” Benito C Bengzon Jr, assistant secretary at the Market Development Group at the DoT, told OBG.

In 2016 Manila will play host to Routes Asia. Dubbed as the largest event of its kind, the conference focuses on the development of global air services and will be leveraged by the local authorities to showcase Manila’s and the country’s aviation credentials and ambitions. In the meantime, the ASEAN Open Skies agreement taking effect in 2015 should contribute to more intra-regional routes launching, while on a bilateral level the government has been busy concluding air negotiations with the likes of Hong Kong, South Africa, Macau, Canada, Myanmar, New Zealand, Singapore and France.

GATEWAY BOTTLENECKS: According to the DoT, 99% of foreign visitors arrive by air, a large proportion of which enter or transit through Manila’s Ninoy Aquino International Airport (NAIA), which handles around 80% of total available national air seats. With a throughput capacity of 30m passengers a year, the current handling volume is deemed to be insufficient for a city of Manila’s size when also considering that it serves as the country’s primary gateway.

Complicating matters further is that NAIA, as currently constructed, consists of four terminals sharing use of two runways. “This raises fuel prices as planes often have to circle prior to landing or wait in a queue to take off” Cesar Cruz, president of the Philippine Tour Operator’s Association (PHILTOA), told OBG. Laurent Lamasuta, president and CEO of El Nido Resorts, told OBG that the requirement for international visitors to pass through Manila on route to an island destination presents further hassles and inconvenience as the terminals have not been interconnected. He explained, “One has to disembark from the international terminal, clear immigration, grab their luggage and take a taxi through what can be intense traffic to the domestic terminal where they then go through security again.”

To alleviate congestion, an upgrade of Terminal 1 is under way and expected to be completed to coincide with the hosting of the Asia-Pacific Economic Cooperation Summit in November 2015, while an elevated highway linking Terminals 1, 2 and 3 to Skyway and Manila Bay is tapped for completion in 2016. However, NAIA’s location amidst the sprawl of Metro Manila complicates the feasibility of overly ambitious expansion plans. At present there is no interim solution to add new airport capacity serving the capital as authorities continue to deliberate over competing proposals. “We don’t need a band-aid solution,” Cruz told OBG. “We need to find a new slot and start constructing. And once a slot is selected, there must be restrictions on residential buildings [being constructed] nearby so that if the airport needs to expand in the future we won’t run into the same problem.”

Longer-terms proposals include a greenfield airport in Manila’s southern suburbs and a plan to convert Clark International Airport – a sprawling former US military base situated 100 km north of and a one-and-a-half-hour drive from Manila that handled 1.2m passengers in 2013 – into the country’s main airport. Any of these projects would cost several billion dollars, not including transit links to Manila, and the government is expected to opt for an investor-financed, build-operate-transfer model.

DIVERTING TRAFFIC: “The immediate solution to offsetting NAIA congestion is to have the airport bypassed entirely by those not travelling to the city,” said Bengzon. Secondary locations outside of Manila currently equipped to handle international traffic include Mactan-Cebu International Airport (MCIA), Francisco Bangoy International Airport in Davao and Puerto Princesa International Airport (PPIA). Each are experiencing passenger volumes surplus and are being tapped for expansion programmes, to take shape under public-private partnership arrangements with the hope that they could emerge as significant international gateways to compliment NAIA. Filipinoowned Megawide Construction in a consortium with Bangalore-based GMR Airports was awarded a contract in 2014 for the expansion of the MCIA to 8m passengers per annum valued at P14.4bn ($324m), while PPIA’s $82.9m design-and-build upgrade contract was awarded to South Korea’s Kumho Industrial Company and GS Engineering & Construction.

In addition to bolstering the international handling capacity of secondary airports, new domestic airports, such as one to potentially be located on the Panglao Island in Bohol Province, are in the proposal stage. Overall, the Philippines is deemed to have a strong competitive landscape of rival low-cost carriers serving domestic routes, a factor that has contributed to a rapid rise in Filipinos themselves flying more than ever before.

“Domestic flights are in good supply and come at reasonable fares. If you book enough in advance, you can fly Manila to Boracay and return for under $70,” John Paul M Cabalza, the president of the Philippine Travel Agency Association, told OBG. To complement airport developments and facilitate intra-modal transport, maritime, road and rail projects are also expected to be put up for concession.

TAKING STOCK: Hotel rooms, as with transport infrastructure, are also lagging demand. The country currently has 80,162 rooms available, while demand stands at 121,875, according to DoT figures. In 2013 the DoT called on hospitality developers to increase the number of beds, anticipating a gap of 32,023 rooms by 2016. Hotel groups appear to be taking heed: in Metro Manila alone, according to a Colliers International report for the fourth quarter of 2014, over the course of the year 2038 rooms were added to Metro Manila’s stock for a total of 19,373 rooms, with an average of 3580 new rooms expected to hit the capital annually over the next four years. According to the report, the majority of new properties are expected to be managed by international brands.

It appears that new stock is pacing slightly ahead of growth in tourism arrivals, with Colliers estimating that occupancy rates in Metro Manila declined to 65.6% in 2014. Generally speaking, 70% is considered the benchmark rate that the tourism industry aspires to as it represents a comfortable middle ground of neither over nor under supply. “More hotels means more choice, which is good news for operators as it leads to room rate competition,” said Cruz.