Featuring many attractions, from the iconic Machu Picchu to the Andes Mountains, the Pacific Ocean shores to the Amazonian forest, the tourist offering in Peru is rich and diverse, complemented by its internationally renowned cuisine and rich Inca heritage.
In recent years, tourism, traditionally a neglected sector in Peru, has experienced unprecedented development, driven by increased institutional support and a dynamic private sector. Rising public spending as part of the government’s efforts to bridge the transport infrastructure gap should see connectivity, one of the sector’s biggest challenges, improve in the coming years. On the private sector side, rising tourist demand for accommodation and services, in large part fuelled by a growing meetings incentives conferences and events (MICE) segment, is driving investment in the hotel industry. Meanwhile, efforts to diversify attractions are leading to the development of niche across Peru, as enthusiasm grows.
Since 2002 Peru’s tourism industry has grown at a stable rate. According to the Ministry of Foreign Trade and Tourism (Ministerio de Comercio Exterior y Turismo, MINCETUR), in 2013 international arrivals increased 11% to 3.16m, up from 2.84m in 2012, a growth rate above the regional (5.1%) and world averages (4.6%) as measured by the World Travel and Tourism Council (WTTC). From January to May 2014, international arrivals surpassed 1.3m, according to MINCETUR, 42,083 more than the number seen in the same period the previous year. Peru hopes to reach 3.5m foreign visitors in 2014.
Sector revenues rose by an impressive 28% in 2013, from just over $3bn in 2012 to $3.9bn, making tourism the third-most-important source of revenue to the national economy. Reaching the government’s longterm target of 5.1m annual visitors by 2021 would allow the sector to generate more than $6.8bn in revenues, overtaking financial services to become the secondhighest source of national income, after mining. The sector is already a key generator of jobs and GDP growth, accounting for 7.7% of employment in 2013 and contributing 3.5% to GDP directly, according to WTTC. The sector’s total contribution to GDP is significantly higher, at some 9.3%.
According to a study by Peru’s Export and Tourism Promotion Commission (Comisión de Promoción del Perú para la Exportación y el Turismo, PromPerú), in 2013 the majority of international tourists, some 61% of the total, travelled to Peru for recreational reasons, while 14% visited to see family and friends. Business tourists continue to represent a significant share of the pie at 13%, while the remaining 12% selected other reasons for visiting. International tourists stay on average 10 days and spend $99 daily, an increase from $84 in 2012, making the average spend $990 per trip.
The capital, Lima, which was recently named most attractive city in Latin America and the Caribbean in the fourth annual MasterCard Global Destination Cities Index, welcomed 72% of international visitors to the country in 2013. More than 1.8m of these arrived through the city’s Jorge Chávez International Airport. Boasting the best connectivity, Lima is often the starting point in the preferred southern tourism circuit, which includes Cusco, Arequipa and Puno. Cusco is the second-most-visited city, attracting 33% of international visitors.
Located in the south-eastern Cusco region, the iconic Inca citadel of Machu Picchu, one of the Seven Wonders of the World and named best destination by the Trip Advisor website two years in a row, saw more than 1.1m visitors in 2013, according to MINCETUR – 804,000 foreign and 373,000 local. A recent measure extending visitor hours could see that number rise in coming years. The site generated $492m in revenues in 2013, with visitors spending between $350 and $450 per day on items and services like transport, tickets, refreshments and souvenirs.
Attracting over a quarter (27%) of international visitors, Tacna, located in the southernmost region of Peru, is the third-most-popular destination city in the country. Only 35 km from the border with Chile, Tacna is the main entry point for Chilean tourists, many of who cross the border in search of Peru’s renowned restaurants, as well as medical services.
Primary Source Markets
The largest source market for Peru’s tourism sector remains the South American continent, which supplied more than 1.8m visitors in 2013, followed by North America (610,418), Europe (512,990), and Asia (129,920). On a countryby-country basis, Chile is by far the leading market, with 886,485 tourists in 2013. The US comes a distant second at 487,328, followed by Ecuador (208,358), Venezuela (158,215), Argentina (155,145) and Brazil (143,538), which all provide a steady flow of tourists. Japan and Panama both registered an impressive leap, with the total number of tourists coming from those countries increasing by 19.7% and 17.1%, respectively, in 2013.
Fuelled by an expanding middle class, domestic tourism has grown between 7% and 10% annually in recent years. In 2013 the segment rose by 9%, generating nearly PEN2bn ($714m), according to PromPerú. Lima, Ica, Arequipa, La Libertad and Junín are among the most popular destinations for Peruvians, though the market for other locations is growing as well.
“As demand for new destinations like Huancavelica and Huánuco picks up, we are beginning to see a degree of decentralisation in the tourist offer,” Walter Vizarreta Vilcarromero, deputy director of market intelligence and forecasting at PromPerú, told OBG. Other locations are also gaining popularity, including the northern beaches in Chiclayo, Piura and Tumbes, as well as Jauja, Tarma and Huancayo in the highlands and central jungle. According to PromPerú, the domestic tourist spends on average PEN458 ($163.50) per trip, though 25% of Peruvian travellers spend more than PEN600 ($214.20).
Sector growth has been largely due to the concerted efforts of government agencies and the private sector. Since 2002, when Law 27889 imposed a $15 tax on all incoming airfares, the sector has benefitted from the creation of a fund to finance tourism promotion activities. The largest part of this fund – 80% – is used to finance the activities of PromPerú, which oversees tourism promotion activities domestically and abroad. Launched in 2012, the campaign “Peru: Empire of Hidden Treasures”, showcases the country’s rich Inca heritage and has been the main promotional tool used to promote Peru in foreign markets. In September 2014 MINCETUR announced it would be spending more than $10m to strengthen four advertising campaigns, including “Peru: Empire of Hidden Treasures”, to reach more than 1.5bn potential visitors.
PromPerú plans its promotional activities in accordance with market dynamics, grouping markets in three main categories: priority, maintenance and strategic. Priority markets, 17 in total, include the US, Chile, Brazil, Argentina, Colombia, Germany, Australia, Colombia, Spain, France, Italy, Japan, Mexico, the UK and Canada. Promotional activities for these markets get the most funding.
With the help of MINCETUR, PromPerú also conducts joint efforts within the framework of the Pacific Alliance, which includes Colombia, Chile and Mexico. The bloc is working towards the eventual establishment of open sky policies and visa simplification initiatives. Such joint efforts are aimed particularly at attracting more tourists from the Asian continent, combining itineraries to make the long-haul flights more attractive. According to PromPerú, 23% of the tourists who visited Peru in 2013 combined the trip with other destinations in the region, in particular Bolivia, Chile, Argentina, Ecuador and Brazil.
At the national level, since November 2012 PromPerú has run stimulus packages under the campaign “Y tú qué planes?” (“So what are your plans?”), which offer discounts on tour packages to specific locations. Besides promoting travel domestically, the campaign is also aimed at breaking the seasonal nature of domestic demand.
The remaining 20% of the PromPerú fund is used to finance Plan COPESCO, MINCETUR’s unit in charge of carrying out projects of interest to the sector. The agency is playing an key role in helping to develop and diversify tourist attractions across the country. “We try to focus on infrastructure projects that will improve the tourist’s experience. Depending on the site, this includes new projects like creating information centres, observation binoculars, installing signs, parking facilities and pathways, among others, to increase the attraction of the site and ultimately contribute to the economic development of the regions,” Jaime Enrique Valladolid Cienfuegos, Plan COPESCO’s executive director, told OBG.
A significant part of the agency’s work has focused on further developing the south circuit. In Lima and Arequipa, efforts have been oriented towards expanding the cities’ cultural offerings, while the city of Puno has benefitted from projects in the community-based segment. More recently, COPESCO has focused projects on the northern circuit, in particular the beaches in Piura and Tumbes, and the development of the Moche Route, which begins in the Trujillo region and runs along La Libertad and Lambayeque, where the archaeological sites for the Moche culture can be found. In the Amazon region, projects have focused on Kuelap and the Amazon River.
Given its recent performance, the sector could be receiving new institutional support in the near future with the establishment of its own ministry. Though tourism remains a part of MINCETUR, a number of important sector associations are pushing for an independent ministry. “The tourism sector is gaining importance and we are optimistic that the next government, regardless of who is elected, will seriously consider the establishment of a ministry to focus exclusively on tourism,” Luis Villa Prado, general manager at the National Chamber of Tourism (Cámara Nacional de Turismo, CANATUR), told OBG.
The sector is also set to benefit from large-scale public investments in the tourism and transportation sectors as part of the government’s efforts to bridge the infrastructure gap, which is currently estimated at $90bn. A lack of connectivity has been a major sector challenge, making travel across Peru difficult and expensive, particularly for international tourists. Growth in cargo and passenger flows in recent years has pushed airport facilities beyond operating capacities, and demand continues to rise. “Flight frequency has been increasing and according to information from CANATUR several new airlines are lining up to enter the Peruvian market, including Alitalia, Lufthansa and Turkish Airlines,” Nancy Bojanich, investment specialist at ProInversión’s investors servicing division, told OBG.
A series of ongoing and planned projects to upgrade and expand the road network, build new airports and upgrade existing ones is set to improve connectivity. Investment in the tourism sector reached $42m in 2014, and another $43m is programmed for 2015, according to MINCETUR. Projects are being carried out mostly through public-private partnerships (PPP).
Jorge Chávez International Airport, the country’s main airport, is undergoing expansion, which will increase its capacity to 23m passengers per year. The $800m expansion plan includes construction of a second terminal, scheduled for completion in 2016, as well as a second runway, initially expected to be operational in 2018. However, in March 2013 local press reported that plans to construct the new runway would be put on hold until 2020, following the government’s failure to transfer the total amount of land necessary to carry out the project. At the time of writing construction of the second runway was still in the land delivery phase.
Also undergoing expansion is the Rodríguez Ballón International Airport, in Arequipa. The project, which represents an investment of $80m by Aeropuertos Andinos del Perú, the operator of regional airports in the south, includes construction of a second terminal and will increase the airport’s capacity to 3m passengers annually. Construction started in 2014 and is scheduled for completion in 2016.
Aeropuertos del Perú (ADP), which operates Peru’s northern airports, began expanding Pisco International Airport in 2012. The project will see the addition of a new terminal and represents an investment of PEN153m ($54.6m). When completed in 2017, the airport’s annual traffic is set to rise to 400,000 passengers. The expansion will contribute to the decentralisation of international flights from Lima, as well as consolidation of regional touristic centres, such as Bahia de Paracas and the Nazca Lines. ADP also reported that it would invest $112m between 2013 and 2015 in modernisation projects to enable runways to accommodate larger aircraft in a number of its airports, including Chiclayo, Piura and Talara.
The country will be adding another airport, the Chinchero Cusco International Airport (AICC), which will be situated 29 km north-east of the city of Cusco. The concession was awarded in May 2014 to the consortium Kuntur Wasi, made up of Argentina’s Corporación América and Peru’s Andino Investment Holding. The airport, which will see an investment of $657.5m, will be able to handle up to 8m passengers annually. Construction is scheduled to begin in the second quarter of 2015 and the facility is expected to be operational in 2020.
On a smaller scale, the aerial tramway, which will connect the town of Nuevo Tingo in the Amazon to the Fortaleza de Kuelap, the main archaeological site for pre-Incan Chachapoyas culture, will also be built and operated under a PPP arrangement. A 20-year concession was awarded in May 2014 to a consortium made up of the French firm Pomagalski and Peru’s Ingenieros Civiles y Contratistas Generales, which bid around $17.9m for construction and PEN3.5m ($1.2m) for annual operation and maintenance. The aerial tramway will run a total distance of just over 4000 metres in 20 minutes, and will be able to transport up to 1000 passengers per hour. Construction is scheduled to begin in early 2015, and end in the first quarter of 2016, the date set for the tramway to enter service. MINCETUR hopes the project will see visitors to the site more than triple from its current 30,000 annual total to 100,000.
Another aerial tramway project, in Choquequirao, was to be awarded in the first quarter of 2015. This would connect Kiuñalla in the Apurímac region to the Archaeological Park of Choquequirao in the Cusco region, crossing the Apurímac canyon. The tramway would facilitate access to the park as part of an extension to Machu Picchu and contribute to a diversification of the area’s tourist offering. However, in October 2014 the concession was suspended following a motion initiated by the provincial major. Once signed, the concession is expected to include the design, ideal route and operation for a period of 20 years.
A number of other ongoing and planned transport infrastructure projects will make land connections more accessible, including the railroad projects Huancayo-Huancavelica and the fourth section of the Longitudinal de la Sierra (see Transport chapter).
Rising demand for accommodation and services is also spurring significant investment in the hotel industry. According to CANATUR, investment in hotels will reach $1.5bn between 2013 and 2016, and rise to $2.5bn by 2019. A 2013 study by MINCETUR evaluating the hotel infrastructure gap in seven major cities estimates the deficit in the places surveyed will reach $903m by 2017 in a conservative scenario, and surpass $4.8bn for the 2013-27 period.
Such growth opportunities are attracting the interest of international and local investors equally, and expansion is seen across all segments, from hostels to five-star hotels. By 2016, 12 new hotel chains are set to enter the market, including Four Seasons, Holiday Inn by InterContinental, Courtyard by Marriott, Wyndham and Hyatt, while a number of existing brands have announced expansion plans. Although Lima, Cusco and Arequipa have traditionally received the most investment from the hotel industry, chains are now beginning to look beyond these markets. Loreto, Lambayeque, La Libertad and Piura offer many opportunities based on rising demand and hotel room shortages. A degree of diversification in investments should be expected in coming years as investors look to fill demand in other regions (see analysis).
A growing MICE segment is supporting the hotel industry in a significant way. In 2013 Peru climbed four spots in the International Congress and Convention Association rankings from 47th to 43rd, after attracting a total of 64 meetings, up from 51 in 2012. CANATUR expects the segment to generate more than Peru’s immense biodiversity $300m in revenues in 2014, a figure expected to rise to $700m by 2018. Growing demand is leading to unprecedented efforts to boost the country’s limited MICE infrastructure, particularly with construction of a new convention centre in Lima, which, according to CANATUR, will enable the capital to host more than 100 meetings by 2018. Several events in the coming years will help consolidate Peru’s, and particularly Lima’s, position as a MICE destination in the region. The annual meeting of the World Bank and International Monetary Fund in October 2015, the Asia-Pacific Economic Cooperation leaders’ meeting in 2016 and the Pan-American Games in 2019 are among the events scheduled to take place in Lima in coming years (see analysis).
Peru’s rich culture and biodiversity lends itself to a number of specialised segments such as ecotourism, community-based tourism and bird watching, all of which are becoming popular ways to experience the Andean nation. Immensely biodiverse and with a number of natural reserves, the Amazon region offers relatively untapped potential in the ecotourism segment and is attracting renewed investment interest. The country’s largest natural reserve, the Pacaya-Samiria, located between the Marañón and the Ucayali rivers, extends over 2m ha and is home to thousands of flora and fauna species. The number of visitors to the reserve has increased steadily over the past decade. From January to June 2014, the total number of visitors exceeded 1m, a significant increase compared to the 657,000 registered in the same period the previous year.
A number of small lodges are setting up operations near the reserve to meet rising demand for accommodation. Most of the existing operations combine somewhere to stay with exclusive tours. However, with virtually no high-end hotels, demand for this type of accommodation is still unmet.
A Ride Along The Amazon
The region is particularly popular for excursions along the Amazon River. Demand for luxury Amazonian tours is increasing, along with high-end tourism in general, which grew 7% in 2013, according to CANATUR. Investment is on the rise with operators launching new ships, refurbishing old ones and introducing new Amazon itineraries. On the luxury end, Aqua Expeditions maintains the greatest presence, operating two vessels: its original 12-suite Amazon vessel, Aqua Amazon that has been sailing since 2007, and the Aria, a 32-passenger vessel that was first launched in 2011. In 2014 Aqua Expeditions refurbished and re-launched the Aqua Amazon and partnered with Avalon Waterways to charter the Aria for an 11-day itinerary, which includes a three-night cruise from Iquitos through the Pacaya-Samiria National Reserve.
At the end of 2013 International Expeditions upgraded its 28-passenger La Amatista, with the launch of La Estrella Amazónica, a newly built 31-passenger vessel with 15 outward-facing, 20-sq-metre cabins featuring private balconies, a fitness centre and a 93-sq-metre observation deck.
Queen Violet, a newly built 32-passenger vessel launched in May 2013 by G Adventures, has 16 outward-facing cabins and a sun deck with bar and lounging areas. Moreover, local media reported that authorities in Loreto were working with a Portuguese-Italian cruise chain to build four luxury Amazon cruise ships to connect the Brazilian city of Manaus with Iquitos.
In the community-based tourism segment, the Puno region is becoming a popular destination, offering tourists the opportunity to immerse themselves in Andean culture, learn about local customs and rural living while enjoying the natural landscape. Locals are taking the initiative, setting up family operations and offering all-inclusive packages.
Another growing segment is bird watching. Peru is among the countries with the highest bird biodiversity in the world, and locations like Manu, Tambopata, Madre de Dios, Abra Malaga, Iquitos and the Ballestas Islands offer significant potential for this niche market. In 2012 the segment attracted 14,500 tourists, a figure estimated to have risen to 16,000 in 2013, with economic benefits of $34m, according to PromPerú. Since 2012, the public and private sectors have conducted joint promotional efforts, such as launching the Birding Rally Challenge, a competition in which participants trek across Peru for a week to see as many species of birds as possible. Bird watching is also one of four segments being promoted at the regional level through the Pacific Alliance.
Thermal tourism is another activity with significant potential in Peru. According to the Institute of Geological Mining and Metallurgy, there are more than 500 sources of medicinal mineral water across the country. The Tourism Development Office has registered 242 of these as potential destinations and the segment is on MINCETUR’s radar. The National Strategic Tourism Plan calls for the creation of a national brand, Yaku Termas: Aguas Doradas del Perú (Yaku Hot Springs: Peru’s Golden Waters).
Combining historical significance and healing properties, the Inca Baths, a collection of volcanic hot springs in Cajamarca, is one of the most important thermal sites in the country and part of the Inca Baths tourism complex, which attracts between 600,000 and 700,000 visitors a year. The area has recently seen the construction of a thermal village, an investment of $3.8m, which is expected to double the number of visitors in the next few years. Given the segment’s potential and its relative underdevelopment of infrastructure and facilities, there is ample room for growth.
With the Peruvian government intent on diversifying the economy away from mineral resources, the tourism sector is slowly becoming a strategic one, especially given its growth potential. Connectivity is set to receive a boost from ongoing and planned projects. Considering the diversity of attractions in Peru, increasing transport connections would act as an incentive for longer stays and more travelling across the country, both conducive to higher visitor spending. The government is likely to continue focusing on building infrastructure around touristic sites and supporting growth in relatively undeveloped markets.
Meanwhile, the next few years should also see a consolidation of the MICE market and significant new hotel development, raising the bar for the services industry. In all, the sector is likely to continue to play an expanding role in the economy in the next decade, with the WTTC forecasting the industry will register annual growth rates of 6% over the next 10 years.
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