Tourism played a central role in the Philippines’ economic development in the years leading to 2020, and an increasing emphasis on sustainability and responsibility underscores the sector’s importance for the years to come. While the popular island of Boracay has long drawn tourists, local authorities continue work to diversify destinations through the creation of tourism enterprise zones (TEZs). These endeavours, as well as those aimed at widening source markets, have laid the groundwork for an expanded yet more tailored offering.
Although the Covid-19 pandemic had a negative effect on the sector and the economy as a whole in 2020, policymakers and stakeholders are looking to adapt the sector’s offering and prioritise domestic tourism to support the national recovery. Enhanced health and safety measures have been implemented to align hotels, tourism sites and other services with the demands of the new normal. Meanwhile, a shift towards digitalisation and the use of technology to upskill the workforce are readying the sector for the future.
Structure & Oversight
The Department of Tourism (DOT) is the sector’s main regulator and also markets the Philippines as a destination via its overseas offices. While international arrivals were banned for much of 2020 due to Covid-19 restrictions, these branches are expected to be key to reviving international tourism once international restrictions are eased. Meanwhile, the Tourism Promotions Board (TPB) is responsible for designing promotions and marketing campaigns. In 2019 the TPB began new programmes to market alternative destinations such as Pampanga, Southern Cebu, Samar and the Bangsamoro Autonomous Region in Muslim Mindanao.
The Tourism Infrastructure and Enterprise Zone Authority (TIEZA) – which operates under the auspices of the DOT – works to drive investment in designated areas through fiscal and non-fiscal incentives such as six-year income tax holidays. Created in 2009, it also develops, manages and supervises tourism infrastructure projects, as well as designing, regulating and supervising TEZs. There are five TEZs: Bucas Grande, a 167.7-ha area in Socorro, Surigao del Norte; the Amorita Resort in Panglao, Bohol; Aton Land and Leisure in Negros Occidental; the Magikland Cultural Zone inside Aton Land and Leisure; and the King Dome Stadium in Davao. TIEZA is also looking to develop tourism clusters, with different areas of the country focusing on specific segments. “Clark could be an appealing destination for business and shopping tourists from China and other Asian markets, while remote islands can be attractive to European and other western markets,” Pocholo Paragas, COO of TIEZA, told OBG. “It is not possible to base all tourism on ecotourism; there has to be variety, and clusters are a promising way of facilitating diversification,” he added.
Policy
The DOT’s National Tourism Development Plan (NTDP) 2016-22 is the framework that guides the industry’s development. It aims to encourage sustainable and socially responsible tourism. It identified 20 tourism clusters around the country, each including priority tourism development areas. It was designed with the aim of almost doubling tourism revenue from P2.1trn ($41.8bn) in 2015 to P3.9trn ($77.6bn) in 2022, while also increasing the number of inbound visitors from 5.4m to 12m. “It is important to prioritise some products and services in order to reach the NTDP’s goals of improving access, developing the product and protecting the environment,” Aileen Clemente, chairman and president of travel service provider Rajah Travel, told OBG. The roadmap also aims to boost the sector’s competitiveness on a global scale. In 2019 the Philippines ranked 75th out of 140 countries in the World Economic Forum’s travel and tourism competitiveness index, up from 79th in 2017. It performed best on price competitiveness (24th), natural resources (36th), and human resources and the labour market (37th).
Arrivals
Visitor arrivals had steadily increased since the implementation of the NTDP’s baseline of 5.4m in 2015. The country welcomed 6m visitors in 2016, above the plan’s target of 5.9m, with 6.6m arriving the following year, above the targeted 6.5m. However, in 2018 visitor arrivals fell short of the targeted 7.4m, totalling 7.1m. This was largely attributed to the closure of Boracay, one of the country’s most popular destinations, between April and October in order to rehabilitate the island from the effects of unchecked development, overburdened wastewater facilities and overpopulation. Upon reopening, measures were put in place to prevent future damage, including a maximum allowance of tourists and workers, and strict environmental accreditation procedures. Arrivals bounced back in 2019, surpassing the NTDP’s target of 8.2m to reach almost 8.3m – a 15.2% increase. The Philippines’ most popular destination for foreign arrivals in 2019 was the newly reopened Boracay, which hosted 1.6m foreign guests, according to the DOT; followed by Cebu, with 1.4m; and Davao del Sur, with 1.3m.
Covid-19 was an understandable setback for the NTDP’s goal of 9.2m foreign visitors in 2020. In late March the country closed its borders to most foreign arrivals, with exceptions for the spouses of citizens, diplomats, airline crew and holders of certain special long-term visas. In the first seven months of 2020 arrivals dropped by 73%, from 4.9m to 1.3m. Pandemic-related lockdowns also imposed restrictions on business operations and domestic travel, limiting the potential for local travellers to make up for international visitors. Tourism revenue similarly fell by 72% year-on-year (y-oy) to P81bn ($1.6bn) as a result. While the country is expected to remain closed to most foreigners through mid-2021, in October 2020 the Inter-Agency Task Force for the Management of Emerging Infectious Diseases ordered a technical working group to review the ban on foreign arrivals. Exemptions and other issues remained under discussion as of late 2020.
Looking ahead, a July 2020 survey of around 250 businesses in tourism-related segments by PwC found that 79% of respondents were optimistic about a recovery by mid-2021, while 21% expected a longer time frame. PwC similarly forecast that international arrivals would bounce back in the medium term, from an estimated 3.9m in 2020 to 6.2m by 2024.
Hotel Infrastructure
As visitor arrivals grew over the 2010-19 period, hotel infrastructure expanded by an average of 2000 hotel rooms per year – with around 2800 rooms completed in 2018. While real estate consultancy Colliers initially expected 6870 new hotel rooms to come on-line between 2020 and 2022, for an average of 2300 rooms per year, this projection was revised downwards in light of the pandemic. Nonetheless, even after hotel room construction slowed to 375 rooms in the first half of 2020, the agency noted in August that it still expected 1725 rooms to enter the market by the end of the year.
Hotel performance similarly reflected rising visitor numbers, with the average hotel occupancy rate countrywide reaching 72% in 2019, before falling to 50% in April and May 2020 amid Covid-19-related restrictions ; full-year occupancy is expected to drop to 30%. Continued air transport disruptions are likely to affect the segment for some time, with Colliers forecasting occupancy rates will hover below 50% through 2021. Meanwhile, average daily room rates in Metro Manila are expected to fall by 30.4% from $79 in the second half of 2019 to $55 by the end of 2020.
Spending, Employment & Investment
The rise in visitors in recent years saw higher expenditure, with tourism spend reaching P3.7trn ($73.6bn) in 2019, up 12.1% from P3.3trn ($65.6bn) in 2018. Domestic tourists contributed the majority, at P3.1trn ($61.7bn), while foreign visitors spent P548.8bn ($10.9bn). These totals were considerably higher than the previous year, up 10.7% and 23.2%, respectively. Tourism revenue also rose, reaching a record $9.3bn, up 20.8% from $7.7bn in 2018. Higher levels of spending and revenue had a trickle-down effect, increasing the number of jobs in the sector from 5.4m to 5.7m, with 14% of employed Filipinos working in tourism-related industries.
Investors, in turn, were attracted to the burgeoning market. Investment from the private and public sector reached P663.2bn ($13.2bn) in 2019 – P569.1bn ($11.3bn) of which came from private investment and P94.1bn ($1.9bn) from the government – according to figures from the Philippine Statistics Authority. Government spending on tourism grew by 23.5% over the year, highlighting the sector’s importance to economic development. Indeed, tourism contributed 12.7% to GDP in 2019, up from 12.3% in 2018 and 11.7% in 2017. Tourism direct gross value added reached P2.5trn ($49.7bn), 10.8% above 2018’s figure of P2.2trn ($43.8bn).
Source Markets
Even as the number of travellers to the Philippines rose, the composition of visitors remained relatively consistent. South Korea has been the top source market since 2010, with nearly 2m visiting in 2019, comprising 24% of all tourists. These figures were up from 1.6m visitors and 22.7% of all arrivals in 2018. Visitors from China – the second-largest source market – also rose, from 1.3m in 2018 to over 1.7m in 2019, increasing from 17.6% to 21.1% of the total. Other major source markets are the US, with 1.1m visitors and 12.9% of the total, Japan (683,000, 8.3%) and Taiwan (327,000, 4%). Of the top-12 markets by volume, China was the fastest growing in 2019, with visitor numbers expanding by 38.6%, followed by Taiwan (35%), South Korea (22.5%) and Germany (12.7%).
Domestic Tourism
With an eye on reopening and recovery, in early September 2020 the government announced a gradual resumption of domestic tourism starting in October. “The year 2021 will be about local tourism,” Bernadette Romulo Puyat, secretary of tourism, told local press. Under the plan, domestic travel bubbles were created within specified regions to facilitate travel while adhering to health mandates. The popular island of Boracay, however, was opened to all domestic tourists, with travellers required to show a negative Covid-19 PCR test result and a confirmed booking with an accredited establishment. The government also encouraged Filipinos to take staycations in local hotels in some low-risk areas starting in May, gradually expanding to areas under general community quarantine (GCQ) – characterised by a lifting of the stay-at-home order, the resumption of limited public transport and the reopening of some establishments – in October. In mid-October it was also announced that some hotels in areas under GCQ, or the more relaxed modified GCQ, would be permitted to return to 100% operational capacity – subject to DOT approval and based on hotel compliance with safety guidelines.
Indeed, the volume of local tourists could even offset the loss of foreign tourists, according to a September 2020 report from the Asian Development Bank (ADB): around 8m Filipinos travelled abroad in 2018, exceeding the 7.1m international arrivals. In a positive sign for tourism players, 77% of 12,000 respondents to a DOT poll released in June reported a willingness to travel domestically upon the easing of restrictions. Participants stated a preference for destinations closer to home, although Boracay, Siargao and Baguio were also named as top destinations. With regard to priority tourism activities, beach trips ranked highest, selected by 69% of respondents as a likely reason for travel, followed by road trips (54%) and staycations (41%).
Health & Safety
Integral to the DOT’s efforts to reopen to both domestic and international tourists is ensuring health and safety; however, some hard-hit players have voiced concerns about their ability to finance the necessary changes to enable social distancing and enhance sanitation. To facilitate these alterations, in June 2020 the DOT and the Board of Investments (BOI) announced the approval of incentives to help entities upgrade and modernise tourism facilities to ensure the health of customers. Included in these incentives was a BOI-led, three-year income tax holiday, with the list of eligible project types including barriers and deionisers in transport, as well as the renovation of rooms and the installation of partitions, automatic doors and elevators, thermal scanners and ventilation in hotels. The DOT also issued new health-related guidelines for accommodation facilities, with protocols launched in late May for activities such as guest handling; housekeeping; food and beverage services; kitchen sanitation and disinfection; transport; and the treatment of symptomatic guests. In June the DOT and the Department of Trade and Industry issued recommendations for restaurants, such as advisories for delivery services, sanitation, and employee and customer health. As the country moved to reopen domestic tourism, in September the DOT issued rules for beaches and other island operations. Under the guidelines, visitors must present bookings at an accredited establishment upon arrival, with walk-in guests prohibited unless they are part of an organised day tour or present a return ticket for the same day.
The DOT worked to align its health-related protocols with international standards. In late September 2020 the World Travel & Tourism Council (WTTC) gave the department the SafeTravels Stamp, certifying it complied with global health standards. This enabled the DOT to grant the stamp, in turn, to hotels, airlines, restaurants, tour operators, attractions and transport that follow the WTTC’s health and safety protocols.
Government Assistance
In response to Covid-19, President Rodrigo Duterte signed the first national stimulus package, the Bayanihan to Heal as One Act, into law in late March. The legislation, supported with P275bn ($5.5bn) of funding, granted the president emergency powers to address the pandemic.
The Bayanihan to Recover as One Act, or Bayanihan 2, was signed by President Duterte in mid-September 2020 and provided a further P165.5bn ($3.3bn) to aid recovery. This package specified a P10bn ($198.9m) allocation for the tourism industry and micro-, small and medium-sized enterprises (MSMEs). MSMEs comprise around 99.9% of all accommodation and food service businesses, and will therefore be instrumental in the recovery of the tourism sector. Some P6bn ($119.3m) of this sum was designated for a loan programme: DOT-accredited MSMEs and businesses licensed by local government units will be prioritised for no-collateral, interest-free loans, payable in three years with a one-year grace period. P3bn ($59.7m) of the remaining assistance was earmarked for financial aid for displaced and unemployed tourism workers, with the remaining P1bn ($19.9m) for road infrastructure improvements.
Marketing
The DOT has altered its marketing strategies to reflect the new reality. In April 2020 it launched the Travel from Home campaign, encouraging potential travellers to explore destinations virtually – including virtual backgrounds of top travel spots for video calls. The following month, it launched the Wake Up in the Philippines campaign, featuring videos from all 16 regions, 360-degree underwater virtual tours and instructional cooking videos from well-known Filipino chefs, to continue the promotion of local destinations. These campaigns followed the relaunch of It’s More Fun in the Philippines in 2019, which crowdsourced photos and videos to promote new travel destinations and highlight the importance of sustainable tourism.
Technology
Like much of the economy, the pandemic prompted the tourism industry to digitalise. In addition to marketing and online expos embracing trends like virtual meetings, in September 2020 the DOT digitalised its accreditation system, which certifies that enterprises adhere to minimum standards and environmental regulations. The portal handles accreditation requests, contactless transactions and government services, and features real-time application status notifications and online payments. The gateway aims to ease the burden on MSMEs, which often lack the resources of larger companies. There were 10,042 accredited tourism enterprises by mid-September, marking a 32.4% increase y-o-y, according to the DOT.
Technology is also being used to upskill tourism workers to enable them to capitalise on post-pandemic opportunities. In April the DOT launched an online training programme to help stakeholders manage pandemic-related challenges, aiming to enhance the quality of tourist services by analysing previous performance and unlocking the full potential of human capital.
Events
Technology has also been used in the meetings, incentives, conferences and exhibitions (MICE) segment. In late September 2020 the 19th Philippine Travel Exchange was held virtually, with 161 Filipino tourism service providers, 124 customers and 350 delegates in attendance. Participants from Africa, Europe and South America, as well as players from the region, signed into the online platform to generate P4.5m ($89,500) worth of future bookings. Highlighting the importance of the segment, in July the DOT announced it would allow MICE events in certain areas, at 50% capacity, with safety measures such as distanced seating, wide aisles and pre-packaged individual meals.
Outlook
While 2020 proved to be a challenging year for tourism, the Philippines’ push to encourage domestic travel and staycations could provide a short-term cushion. Meanwhile, efforts to improve infrastructure and adjust to the new normal are readying hotels, tour operators and other service providers for the eventual return of international guests, expected in 2021.
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