As efforts to develop tourist attractions ramp up inside the capital and beyond, the Philippines is well placed to capture a lucrative share of the 1.3bn-strong market of global business and leisure travellers. An archipelago of over 7000 islands with bountiful natural attractions and rich cultural traditions, the country drew 6.6m visitors to its shores in 2017, representing an 11% increase on the previous year. Tourist spending hit $27bn in the process, up from $25bn in 2016, contributing nearly 10% of GDP.
This was some achievement given the context, with negative international perceptions related to the government’s war on drugs, coupled with the terrorist siege of Marawi and subsequent imposition of martial law on the southern island of Mindanao, likely to have curbed demand. The country also faces competition in the sector from fellow ASEAN members Thailand, Vietnam, Malaysia and Indonesia.
Nonetheless, the allure of the Philippines’ diverse tourism offering remains strong, and is expected to continue to grow in the coming years. The relatively low costs, friendly and welltrained workforce, and ample state support provided under a unified national development plan should put the sector on an upwards trajectory. Another valuable asset is language: Filipinos are renowned among Asian nations for the quality of their English, giving them an edge on their regional competitors.
Moving forward the sector has the opportunity to build on positive indicators and activity from 2017. For instance, arrivals from the US and the UK continued to expand that year, in spite of the governments of those nations issuing travel advisories due to threats of insurgency both in Mindanao and the Sulu archipelago. The US issued it warning in July 2017 and the UK in October of that year. China, having recently gained eligibility for visas on arrival, has now surpassed the US as the second-largest visitor market after Korea. In addition, the Miss Universe beauty pageant hosted in Manila in January 2017 built momentum for a raft of other international conferences that were held throughout the year.
Connectivity has improved as upgrades of ports, airports and roads gather pace. All of this boosts the sector’s appeal to foreign investors, who will play a vital part in filling a funding gap needed to meet the tourism sector’s ambitious objectives for the years to 2022 under the aegis of the National Tourism Development Plan (NTDP) 2016-22 launched by the Department of Tourism (DOT) in 2016 (see analysis).
The sector’s main regulator is the DOT, whose mission is to promote and develop tourism as a major source of employment and foreign earnings, and to spread its benefits throughout both the private and public sectors.
The DOT is split into five divisions. The Office of the Secretary, headed by Bernadette Romulo Puyat, oversees all department operations and formulates strategy, policy and regulations. It also monitors implementation of the tourism master plan, and advises the president on tourism matters. The Tourism Promotions Sector, meanwhile, runs marketing campaigns, distributes information, organises special events and oversees the DOT’s field operations abroad. A third arm, the Tourism Services and Regional Offices Sector, is charged with ensuring quality control by devising standards for tourism establishments and conducting accreditation and monitoring to ensure the experience of tourists meets international benchmarks and expectations. The fourth, the Tourism Planning, Product Development and Coordination Sector, oversees efforts to update and effectively implement the NTDP in coordination with other state agencies and the private sector, as well as developing new product offerings and investment opportunities to improve the country’s tourism appeal. Lastly, the Internal Services Sector is tasked with keeping administration working efficiently through personnel management, human resources training, and financial, legal and advisory services.
Other entities also have key roles in directing sector activity. The Tourism Industry Board Foundation, for example, coordinates sector manpower and training between private and public sector players and workers. It was focused solely on the hotel and restaurant segment when it was established in 1980, but its mandate was expanded in 1992 to include all tourism activity. Private firm Philippine Medical Tourism helps arrange package services among healthcare providers to facilitate cost-effective medical care for foreigners seeking treatment in the country. Meanwhile, the Philippine Travel Agencies Association, formed in 1979, represents more than 500 members by coordinating strategy and liaising with public entities to help shape policy. In addition, the Philippine Chamber of Commerce and Industry, whose history stretches back to 1886, advocates on behalf of local businesses to boost entrepreneurship, promote innovation, facilitate trade relations and coordinate international networking. In addition, there is the Bureau of Immigration, which implements the visa regulations that affect foreign tourists. In terms of gathering information on the sector, the Philippine Statistics Authority (PSA) gathers detailed tourism industry indicators and disseminates them online.
Rules & Strategy
The DOT guides sector development through a range of policies and strategy documents. Since the 1990s it has gradually issued rules governing the accreditation for establishments in the sector. Starting with rules to govern accreditation for accommodation in 1992, it then proceeded to create guidelines for different segments, releasing certifications for tours and travel services in 1995, foreign-exchange dealers in 1999, transport services in 2000, medical tourism in 2003, motor boats and agri-tourism in 2004, spas in 2006 and most recently, ecotourism in 2008.
In 2007 the DOT published an official management plan for sustainable tourism, followed by a development planning guidebook for local government units in 2012 and the National Ecotourism Strategy and Action Plan 2013-22. Regionally, the sector coordinates development with neighbouring countries under the APEC Tourism Strategic Plan 2015-19 as well as the ASEAN Tourism Strategic Plan 2016-25.
The biggest legislative development in recent years is the Tourism Act of 2009, which expanded the DOT’s remit and charged it with developing the industry more purposefully through a sector-wide planning document. The result was the NTDP 2011-16, published in 2010, which served as a comprehensive strategic framework for expanding the sector in the medium term, backed by funding of P123.1trn ($2.4trn), of which P20.3trn ($401bn) came from the public sector. Targeted outcomes included expanding secondary international airports, enhancing connectivity with key source markets, building infrastructure between secondary airports and top tourist attractions, and diversifying product offerings through links with local communities.
This was followed by the NTDP 2016-22, which seeks to augment the progress made under its predecessor, partly by allocating the DOT funds to tender three consultancy packages: an eight-month marketing project, at a cost of P9.3bn ($183.7m); a six-month contract for a transport and infrastructure consultancy, with a budget of P677bn ($13.4bn); and a four-month consultancy on tourism investment, worth P2.3trn ($45.4bn). Additionally, the roadmap calls for development of niche tourism segments, including ecotourism, sports, cultural, family, medical and religious tourism.
Size & Share
Tourism represents a large and growing chunk of the local economy. In 2016 it became a $25bn industry, accounting for 8.2% of GDP, well above the 4.7% average for South-east Asia, according to the World Travel & Tourism Council (WTTC). In 2017 its direct contribution increased slightly to $27.3bn, or 8.7% of GDP, with its absolute size forecast to rise by 6.2% in 2018, and then by 5.7% per year over the next decade to reach $50.5bn, or 9.1% of GDP, by 2028. Its full economic effect is larger still: the WTTC estimates that the indirect impacts – such as investment, public outlays, supplier purchases, and the induced spending of industry employees – brought the total value added of the sector in 2017 to $66.3bn, or 21.1% of GDP, again above the regional average of 12%. The total contribution of the sector to GDP, it predicts, will rise by 5.8% annually over the next decade to reach $123.6bn, or 22.4% of GDP, by 2028.
In raw terms, total visitor exports – which is the total amount spent by foreigners while in the country – reached some $6.7bn in 2016, or 7.8% of total exports. In 2017 this rose to $7.5bn, or 8% of total exports. The WTTC expects this figure to grow by 3.4% in 2018, and by 5.4% per year through to 2028, reaching $13.2bn, or 8.7% of total earnings. A steady increase in foreign arrivals, which have more than doubled from 3m in 2009 to 6.6m in 2017, is helping to support this projection and the figure is forecast to surpass 10m by 2027, according to the WTTC. This has buoyed revenues proportionally: UN data shows average receipts per arrival at around $984. The Philippine tourism industry was already the 18th-largest tourism sector out of 185 countries by absolute size in 2017, and ranked 35th by share of GDP measured by direct impact alone, according to the WTTC.
Leisure & Business
The main source of the recent positive revenue performance is leisure spending, which is expected to increase its market share moving forward. According to the WTTC, in 2017 some 66% of tourism’s GDP contribution came from leisure outlays, or P1.8bn ($35.6bn), with the remainder, P919.1m ($18.2m), being business travel spending. Leisure’s share is set to increase even further in future: the WTTC puts its growth rate at 6% in 2018 and estimates it will average 5.9% annually up to 2028, outpacing the share of business travel, which is predicted to grow by an average of 5% per year over the same period. Meanwhile, some 86% of tourism receipts came from domestic spending in 2017, against 14% from foreigners. Here, the domestic portion marginally exceeds the growth rate of the foreign up to 2028, at 5.6% versus 5.4% per annum, according to WTTC figures. The PSA estimates in-country nationals spent around P2.1trn ($41.5bn) on domestic tourism in 2016.
Size and performance vary significantly among the tourism segments. Out of the P1.7trn ($33.6bn) in gross value-added generated by tourism activities in 2016, the largest contributions came from transport services (26.3%) and accommodation (19.7%), followed by shopping (12.6%), entertainment and recreation (11.2%), food and beverage services (8%), and travel agencies (5.2%), with the remaining 17% falling in the miscellaneous category, according to the PSA. In 2016 segments with the highest rate of growth over the previous year were travel agencies, rising by 16.2%, food and beverages (11.9%), and accommodation (10.5%), trailed by shopping and recreation (both at 9.2%) and transport (8.2%); the miscellaneous category, which includes reservations services, grew by 16.2%. All of these categories have shown solid expansion every year since the global financial crisis in 2008, registering an average annual growth rate of 13.8%.
Employment & Investment
Growth in jobs and capital expenditure looks similarly robust. The number of people working in the Philippine tourism sector reached 2.35m in 2017, or 5.8% of total employment, according to the WTTC, rising to 7.8m and 19.2%, respectively, when including indirect impacts. On trend, it calculated these figures would reach 3.2m (6.1% of total jobs) and 10.5m (19.9%), respectively, by 2028. Sector investment, meanwhile, reached $1.9bn in 2017, or 2.4% of total investment, with forecasts suggesting a 4.5% rise in 2018, and 5.2% per year over the next decade to reach $3.3bn. The sector’s share of total induced employment (19.2%) put it well above the averages for South-east Asia (11.8%) and the world (9.9%), according to the WTTC, though its share of total investment, at 2.4%, fell short of the region’s 6.4% and the 4.5% worldwide, partly a reflection of the Philippines’ past outlays to build up its tourism infrastructure.
The rise of globalisation and middle-class incomes in emerging markets has led to a surge in international tourism in recent years, from which the Philippines has benefitted greatly. According to preliminary data from the UN’s World Tourism Organisation, total overnight international tourist arrivals worldwide in 2017 grew by a robust 7% on the previous year, to 1.32bn, the eighth consecutive year of solid growth and the strongest rise in seven years. This was well above the 4% annual expansion achieved between 2010 and 2016. In 2018 the UN expects growth to return to around 4-5%, though this still surpasses the 3.8% average it forecasts for the 2010-20 period.
This is good news for regional tourism. Of the 1.32bn total business and leisure travellers worldwide in 2017, some 324m came to countries in Asia and the Pacific, 6% more than the year before, with South-east Asia’s portion growing by 8%, behind the sub-region of South Asia (with 10%); but ahead of Oceania (7%); and North-east Asia (3%). The UN’s most recent non-preliminary data, from 2016, show foreign arrivals to South-east Asia at 113m – a global market share of 9% – and earning receipts of $117bn in the process, a 10% world share. The South-east Asian region therefore punches above its weight in tourism, with only 8.5% of the world’s population at 620m and 3.3% of global GDP at $2.6trn.
The Philippines’ appeal as a travel destination has increased both within the region and further afield. The latest data from the UN World Tourism Organisation shows that some 4.3m foreigners visited the archipelago in 2012, of which 62.4% were from East Asia and the Pacific. By 2016 the total had reached almost 6m, with regional arrivals making up 64%. The remainder were split among the Americas, which accounted for 18%; Europe (10.5%); and Africa (0.1%). In early 2018 the PSA reported a full-year 2017 figure of 6.6m foreign arrivals, representing a jump of 11% on the previous year. Among the various source markets in the UN data, three stand out for their size and growth rates. South Korea alone sent 24.7% of the total in 2016, the US made up 14.5% and mainland China 11%. Together the three accounted for almost half of all international arrivals. The most recent government statistics show China overtook the US in 2017 to become the second-biggest source market. Substantial numbers also came from Japan (9%), Taiwan (3.8%), the UK (2.9%) and Canada (2.9%) in 2016.
As for growth markets, while some notable expansion rates came from Argentina (35.8%), Venezuela (22.6%), and Papua New Guinea (30.9%), these countries’ figures were starting from a low base of less than 1% share and seem unlikely to be big spenders per capita. Significantly, the arrival figure for South Korea grew by 10.1%, despite it being the top source market, while arrivals from the US and China increased by 11.5% and 37.7%, respectively. Other notable growth markets were Taiwan, at 29%; the UK, at 12.1%; and Japan, at 8%.
Data collected by the World Economic Forum (WEF) on travel and tourism competitiveness worldwide provide a detailed picture of the Philippines’ global market position as well as its potential. The WEF’s latest “Travel and Tourism Competitiveness Report”, from 2017, ranks the country 79th of 136 nations overall, down from 74th out of 141 countries in the previous edition that was issued in 2015. This decline occurred largely because, while the country continued to score well on its core advantages of price competitiveness (22nd), natural resources (37th) and human resources (50th), other conditions and policies offset these strengths, including a restrictive visa policy, which reduced its openness score to 60th; a near-halving of the sector’s public budget allocation, which pushed its sector prioritisation score down to 53rd; deteriorating road quality, on which it slipped 14 places to 107th; security concerns that lowered its safety ranking to 126th; and a decline in the business environment to 82nd due to weaker property rights, a less effective court system, and tighter restrictions on foreign investment.
The accommodation market has remained remarkably robust despite recent security worries. The overall occupation rate at hotels in Manila fell by less than one percentage point to 66% in 2016 – driven largely by a 3.3-percentage-point drop in luxury bookings – while the average length of stay actually increased, from 2.39 to 2.45 days, according to the DOT. Despite their slight decline in bookings, deluxe stays still topped segment occupancy rates at 68.3%, followed by standard (64.7%), first class (58.6%) and economy (57.6%). Average lengths of stay showed a different pattern, with standard rooms coming on top at 2.6 days, followed by first class and premium, both 2.4, and then economy (1.6), with all of these figures representing steady growth on the previous year, save luxury.
While complete sector indicators for 2017 were not yet available at the time of press, the overall occupation rate was up to 70%, according to real estate consultancy Colliers International. In anticipation of higher demand, hotel stock is rapidly expanding. Approximately 1600 new rooms were added in 2017, with another 3400 to become available in 2018, followed by 1900 in each of the subsequent three years. Even with this increased supply, Colliers has forecast that demand will expand fast enough to sustain an occupancy rate of around 65-68% in 2018 (see Real Estate chapter).
Growth in the meetings, incentives, conferences and events segment is one factor that could drive this occupancy rate. In a June 2017 report by the International Congress and Convention Association, the Philippines was ranked 48th out of 155 countries by number of meetings hosted in 2016 with a total of 66, of which 46 were in Manila, and 14th out of 44 in the Asia Pacific and Middle East rankings. Meanwhile, it placed 33rd out of 40 countries for average number of participants per meeting, at 45.7 – though several recent events were much larger (see analysis).
The Philippine International Convention Centre in Manila is the nation’s largest and oldest such venue, built in 1976 and covering 70,000 sq metres. Newer facilities include the 17,480-sq-metre SMX Manila, the 16,500-sq-metre World Trade Centre Manila, and Cebu International Convention Centre at 9000 sq metres. Each of these have a hosting capacity in the thousands, allowing ample room for growth by filling the calendar, even before new construction or upgrades are factored in.
The sector’s recent history of solid growth amid sizeable obstacles supports an optimistic outlook for the medium term. If security incidents are minimised, foreign audiences will gain confidence in the country as a safe tourist destination, which could push arrivals growth up from 11% in 2017 into the high double-digits in 2018. In the short term, sector performance is expected to continue along the same trajectory. In the long term, assuming authorities follow through on the NTDP blueprint, the country could soon be one of the standout performers in a highly competitive region.
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