In recent years, Peru has established itself as one of the world’s most interesting and unique tourism destinations. Much of the sector’s growth has rested on the Incan ruins of Machu Picchu, a globally recognisable historical site. But to accelerate expansion over the coming years, tourism authorities and the private sector are simultaneously increasing promotional efforts and developing the country’s touristic products. Peru’s long history, nature, culture and unique cuisine are seen as critical selling points for future development in the tourism industry. An inflow of private capital into the growing hospitality offer is significantly raising the sector’s profile. Additionally, renovation programmes and infrastructure development are opening up other regions of the country to domestic and international visitors.
Rising Numbers
The sector witnessed lacklustre performance for much of the 1980s and 1990s due to Peru’s political and security situation and insufficient promotion. A combination of significant economic expansion in Peru and neighbouring countries, as well as a better government policy aimed at strengthening tourism’s role as a source of income and employment generator, has rapidly transformed the sector. This new environment has lead to steady growth in the tourism industry for much of the past decade. During this timeframe, international arrivals to the country have almost tripled, growing from a total of 993,706 in the period between January and September 2004 to 2.6m during the same nine month period in 2015, according to figures from the Ministry of Foreign Trade and Tourism (Ministerio de Comercio Exterior y Turismo, MINCETUR). According to the World Travel & Tourism Council (WTTC), the sector accounted for 1.2m jobs in 2014.
Following this growth trend, sector revenues have also seen a gradual increase, from $1.2bn in 2004 to $3.9bn in 2013, declining slightly to $3.8bn in 2014. A rebound was already visible over the first half of 2015, with January to June figures showing a 7.9% rise in the number of foreign arrivals. Visitors in the first semester of 2015 surpassed 1.67m. The WTTC report forecasts that the tourism sector will outperform the rest of the Peruvian economy in 2015, posting 4.5% growth and creating 2.4% more jobs than it did in 2014. By 2025, the same report points out, the sector might support 1.8m jobs.
Cross-Border Tourism
Brazil’s hosting of the 2014 FIFA World Cup may have redirected some travellers from vacationing in Peru that year. The growth in the number of travellers from Chile, one of the most important source of visitors for Peruvian tourism, was slower in 2014 than in previous years, increasing by a mere 2% to reach 903,793 visitors, according to figures by MINCETUR. Chileans typically account for almost a third of all foreign entries, most crossing via the land border to visit the southern Peruvian city of Tacna.
Cross-border tourism from Peru’s southern neighbour, however, is expected to continue growing over the coming years, due to the competitive costs of several goods and services, including health care. “Chileans come to Tacna because prices can be up to 50% lower in Peru, especially for non-surgical services. This is helping to develop a medical tourism industry,” Gianfranco Aliaga Romero, director at Hotel & Tourism Advisors, a consultancy, told OBG.
Visitors
Still, most visitors arrive by air. There were around 2.5m tourist entries through the Jorge Chavez airport in 2014, which serves the capital, Lima, and remains the only international aerial entry point. An extra 1m tourists come through land borders, 85% of which originated from Chile. Peru’s southern neighbour is likely to remain the most important origin country for tourists entering Peru, but other nations are having a visible role in the sector’s growth. The US is the second most relevant market, accounting for 514,227 visitors in 2014, followed by neighbouring Ecuador, with 223,995 and Argentina, at 155,931 entries in 2014, according to MINCETUR.
The EU is also an important tourist market for Peru, with Spain taking the lead with 131,174 visitors in 2014, followed by France at 82,260 and Germany at 69,703. Italian visitors grew the most of any EU country, jumping 15.7% to reach 55,109 visitors the same year. Asia, which as a region accounted for a mere 4% of tourists to Peru in 2014, is one of the markets in which tourism authorities see major growth potential. Currently, the two most relevant Asian countries for tourist arrivals in Peru are Japan and South Korea, accounting for 59,853 and 17,265 visitors, respectively, in 2014.
Sector Governance
To better understand the sector’s economic impact on the Peruvian economy, the Commission for the Promotion of Peruvian Exports and Tourism (Comisión de Promoción del Perú para la Exportación y el Turismo, PROMPERU) was established under the purview of MINCETUR in 1993. PROMPERU is tasked with overseeing promotion efforts both domestically and internationally, and is financed mainly through a tourism fund set up in 2002, which collects a $15 tax on all incoming airfares to the country.
Despite its growing importance for the economy, the sector has continued to succeed without the institutional support of a dedicated ministry. This may be an added example of the sector’s resilience and strength, with policy and support coming from MINCETUR. However, several sector bodies believe that the industry will only be able to fulfil its full potential through full ministerial representation, especially under the country’s institutionalised government structure. “In this country, the political system is ministerial. If you do not have a ministry, you do not exist fully,” Luis Villa Prado, general manager at the National Chamber of Tourism, (Cámara Nacional de Turismo, CANATUR), told OBG. “The sector is growing because of the private sector’s drive and the efforts taken by the government in terms of promotion. What is lacking is a general strategic vision for the sector,” he added.
With economic sectors such as mining facing a slowdown, it is possible that the need to expand foreign-currency sources will strengthen the case for establishing an autonomous tourism ministry. A specific ministry would allow for a better alignment of sector objectives with the country’s burgeoning international profile.
New Pathways
The country’s rising tourism status has been helped by the famed Machu Picchu ruins, the Incan citadel in the Andes. Its importance to the development of a tourism industry in Peru has been critical, with over 1m people visiting each year. Authorities are restructuring the site to allow it to sustain greater numbers of visitors (see analysis). However, a rising awareness of the country’s overall potential is channelling financing and political support into the improvement of other sites. Although the Incan citadel will remain essential for the sector, government and private operators want to expand other tourism products throughout the country.
In July 2015 the provincial municipality of the city of Trujillo, located in northern Peru, and UNESCO signed an agreement to renovate the city’s historical centre. The deal is a first step towards Trujillo’s application to become a UNESCO world heritage site. The application process is expected to be completed before the end of 2016.
Improvement of nationwide tourism potential in the country is also done through MINCETUR’s Plan COPESCO, which is in charge of public works projects to support the sector. Recent projects have included the PEN18.9m ($6m) improvements at Lima’s Art Museum, which were inaugurated in July 2015, and the PEN9.6m ($3m) restructuring of the seafront in the northern town of Puerto Eden, part of the Moche Route, which the government has been developing as a tourist circuit celebrating the Moche culture of northern Peru.
Domestic Tourism
Despite the slight reduction in tourism revenues in 2014, the sector benefited from the strong performance of the domestic tourism market, especially linked to business travellers. “There is this tendency to judge tourist impact on the amount of foreign tourists coming into the country, but there is also a large number of internal tourists. In 2014 we had a 13-14% growth in domestic tourism,” Villa Prado told OBG.
A sign that domestic tourism is both growing and being led by business expansion is the increase in the number of arrivals in the country’s smaller regional airports, many of which are not linked to any of the country’s known tourism destinations. Domestic and international statistics do not always differentiate corporate tourists, but the number of domestic passengers has increased from 5.4m in 2010, to 8.9m in 2014, surpassing the number of international passengers. “The average domestic ticket in Peru is between $260 and $270 – $40 more expensive than in the region. And since there are no consolidated tourism destinations besides the ones in the south, these flights are growing because of business travel. Growth in many economic sectors is affecting the internal air market,” Aliaga told OBG.
In addition to domestic business tourism, Peruvian holidaymakers are also increasingly becoming a relevant part of the sector, albeit with slightly different habits than their international counterparts. As opposed to Europeans, Peruvians will generally spread their vacation time throughout the year, using holidays and longer weekends, instead of taking several weeks off.
Another crucial element that differentiates domestic tourists from international ones is a lower tendency to opt for accommodation. Much of this has to do with the country’s recent history. “30 years ago, a lot of people emigrated to Lima for economic and political reasons. Domestic non-business travel today is mostly about visiting family and friends, so hotel usage for this segment of the market is much lower,” said Aliaga.
Into The Jungle
Amazon cruises, ecotourism lodges and bird-watching tours are becoming niche products attracting tourists beyond the southern attractions of Nazca, Cusco and Machu Picchu. Established in 1982, the Amazonian national reserve of Pacaya Samiria is Peru’s largest protected area, and attracts more visitors each year, which almost doubled from 6378 in 2010 to 11,909 in 2014.
Amazonian cruises are also becoming popular, and an expanding high-end offer is increasing options, with five cruise ships currently in operation, and an extra three to be added sometime in 2016, according to CANATUR. “These luxury boats sail on the Amazon from Iquitos and can cost upwards of $2500 per person for four days,” said Aliaga. “This is an interesting component of luxury tourism that is currently showing significant potential.”
Culinary Destination
The geographic diversity of Peru has allowed for an unusual combination of regional culinary practices, merging mountain, jungle and coastal ingredients into a strong culinary tradition. Peru is leveraging its unique cuisine to rapidly become an international destination for food tourism. In October 2015, the country received the World Travel Award for Best Culinary Destination in South America for the fourth consecutive year. Besides the rising number of restaurant options branded by a generation of world-renowned Peruvian chefs, culinary events across the country are becoming a focal point of domestic and international tourism. The yearly Mistura festival, which takes place on the Lima seafront for 10 days in September, attracted close to 400,000 visitors in 2015. According to figures by CANATUR, 30,000 of these were foreigners coming specifically for the festival.
Meet & Greet
One of the most promising areas of the Peruvian tourism market is the meetings, incentives, conventions and events (MICE) segment. Consecutive years of positive economic performance have raised the country’s international profile as an investment destination. As a result, growth in the number of operating hotels and venues, coupled with easy access to attractions such as Machu Picchu, have made Lima one of the most relevant cities to host events in the region.
In 2014 the Peruvian capital rose four spots on the International Congress and Convention Association (ICCA) ranking, reaching the 39th position. The city is ranked even higher on the North America ICCA ranking, coming in fourth place behind São Paulo, Santiago and the regional leader Buenos Aires. In 2014 Lima hosted 64 international events, a 48.3% increase on the previous year.
Conditions for MICE tourism are expected to improve after the October 2015 inauguration of the new $200m Lima Convention Centre. The project was financed by the Ministry of Housing, Construction and Sanitation, and can host up to 10,000 people, with its biggest room capable of accommodating 5000. “The conditions have changed greatly. We didn’t have an area with capacity for over 2000 people and now we have the biggest convention centre in South America,” Carlos Canales Anchorena, chairman of the board at Lima Conventions and Visitors Bureau, a non-profit organisation focusing on attracting events to Peru, told OBG. The attraction of high-profile events like the 2015 Annual Meetings of the World Bank Group and the IMF, which took place in early October and inaugurated the new convention centre, or the 130th International Olympic Committee Session, due in 2017, are further strengthening Lima’s global profile as a MICE destination.
The MICE segment already accounts for 6% of the annual $3.8bn in income generated by the tourism sector. Although this type of tourism has proved valuable in several countries, in Peru’s case its impact has been especially pronounced. Events in Peru have an average of 750 participants, more than double the world average of 350 attendants per event, according to Canales. As a significant number of MICE visitors travel from long distances, they end up staying double the average time that event visitors spend in other cities across the globe.
A mix of unique historical sites, combined with quality restaurants and a variety of shopping opportunities, means that event travellers in Peru end up incorporating leisure activities into their trip, regardless of the original purpose. This has a visible impact on spending habits: a regular tourist spends between $110 and $125 per day and has an average stay of 11 to 12 days. A MICE tourist has an average stay of five to seven days and an average daily expenditure of $350 to $500, according to Canales. “This type of tourism has a stronger trickle-down effect in Peru than in most other countries,” Canales said.
Hotel Development
Development of the MICE segment is also affecting the hotel business. As opposed to neighbouring countries where government incentives have been key in attracting investment, a combination of healthy tariff levels and occupancy rates is serving as the main driver for new hospitality ventures. Between 2014 and 2021, 102 new hotel projects are expected to be developed across the country, according to Aliaga. Average tariffs in Lima, for example, range between $90 and $110 per night for a four-star facility, and over $190 for a five-star hotel, with some internationally branded hotels charging above $250, according to figures by Hotel & Tourism Advisors. Still, occupancy rates in Lima are quite stable, especially in business-oriented neighbourhoods, reaching an average of 82% in Miraflores and 70% in San Isidro, according to Canales. “There are committed investments up to 2021 of about $2.5bn, half of which will be concentrated in Lima,” he told OBG.
Easing The Way
Regulations concerning developing hospitality infrastructure will also become more streamlined, further incentivising investment. In June 2015, the government approved the establishment of a one-stop shop intended to help to streamline and facilitate procedures involving investments in the tourism sector.
With a long list of hotel projects, securing sufficient human resources will be critical, especially in markets with a high concentration of hotels catering to high-end customers. In the medium-term, average occupancy rates and prices will most likely see a slight reduction due to increased capacity; however, the hotel sector will certainly benefit from the growing influx of leisure and business tourists travelling to the country every year.
International hotel brands are betting on the Peruvian market’s growth. The French group Accor, which currently manages three hotels in the country, has announced plans to add an extra 10 hotels to its Peru portfolio between 2016 and 2017, five in the capital Lima and the remaining units in the cities of Arequipa, Trujillo and Piura. Hilton, already with a unit in Lima’s Miraflores district and another one in the seaside resort town of Paracas, opened a hotel in Cusco in September 2015 and planned to add two more units in the same city before the end of 2015. The hotel chain is also planning to open units in Trujillo and Tarapoto in 2017. International hotel group JW Marriott is also becoming a strong presence in the Peruvian market. In October 2015 it inaugurated its Courtyard by Marriott hotel in Lima, the group’s third hotel in the country. The hotel chain also announced it is considering establishing two to three more hotels in the capital.
In the meantime, Peruvian hospitality establishments are also set to benefit from increased media attention. In 2015 the internationally recognised Condé Nast Traveller, a top tourism and hospitality magazine, published a ranking of South America’s top 25 hotels according to its readers. The 2015 Readers’ Choice Awards chose a total of 11 Peruvian hotels, with the Inkaterra La Casona Hotel in Cusco ranking third. Nine of the Peruvian hotels on the list are in Cusco, while the rest are in Lima.
Other areas of the country are also getting fresh interest from hotel developers. The beach resort of Paracas, south of Lima, attracted $208m in investment in new hotels and tourism housing between 2012 and 2015, according to local media reports.
Infrastructure
The lack of infrastructure remains an impediment to faster growth in the sector. However, a series of large-scale projects are expected to make the sector more competitive. One of the most important projects is the new Chinchero Airport, which will serve as an easy link to the nearby city of Cusco and the Machu Picchu ruins. The $658m facility is expected to be operational by 2019, and will be able to receive international plane arrivals. Air capacity will also improve through a $850m expansion of the capital’s Jorge Chavez airport, which will entail the construction of a second runway. This greatly increase the number of flights each year.
The expansion will allow the country’s main point of entry to receive up to 23m passengers per year, an increase from the 16.1m that passed through the facility in 2014. Other improvements in airport facilities across the country will also boost the air segment’s capability to move domestic and international tourists across different regions. In addition to the recently finalised $52m renovation at the airport in the southern city of Pisco, $170m will be allocated to renovate airport infrastructure in Arequipa, the Andean city of Ayacucho and the city of Tacna, on the border with Chile.
Down The Road
Road development will also support a more inclusive tourism strategy. Completion in 2018 of the 3507-km Carretera Longitudinal de la Sierra, a roadway running north to south along the Andean highlands, will reduce travel times through Peru’s rough geography once finalised.
Other projects will have a more localised impact. The massive expansion of the Lima Metro system is already easing connections within the capital. In April 2015, work began on a new $21m cable car that will link the town of Tingo Nuevo to the Kuelap Fortress, a vast ancient citadel built by the pre-Incan Chachapoyan people in the Amazonian region. By 2016 the new system is expected to cut the trip linking Tingo Nuevo to the pre-Incan site from two hours to 20 minutes, and be able to transport up to 1000 passengers per hour along the 4-km distance. The number of visitors to the Kuelap Fortress has been increasing over the years, rising from 23,696 in 2010 to 40,146 in 2014, according to figures from MINCETUR. Work is expected to be finalised in July 2016, and tourism authorities are hoping that the new infrastructure will enable the increase of annual visitors to 100.000. The development of the new access into the Kuelap Fortress will be essential for the tourism sector’s ability to diversify its offer.
Outlook
A combination of historical sites, natural scenery and growing hospitality infrastructure has raised the profile of Peru’s tourism sector. The government expects the country to attract up to 5.1m visitors annually by 2021 and generate income of close to $7bn, according to MINCETUR. In order to further improve the sector’s performance, there is a need for a clearer development strategy from the relevant authorities. A nationwide effort to develop other attractions will help diversify tourism products. Projects such as building a new cable car to ease access the Kuelap ruins in the country’s Amazon region are a good way to showcase additional destinations to international visitors.
A handful of important archaeological and nature tourism assets across the country remain under-explored, and part of public and private efforts over the coming years will most likely focus on improving conditions to help grow the list of known Peruvian tourist destinations that can draw foreign and domestic visitors. Expanding sector options will also rely heavily upon the on-going improvements to the country’s transport infrastructure and connectivity.
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