Thanks to its unique historic and cultural offering, including one of the world’s most exciting cuisines, Peru is the fastest-growing tourism destination in the region. In January 2017 the country once again appeared on several go-to destinations lists, including Bloomberg’s “Where to go in 2017”, while The New York Times also singled out Cusco and the Sacred Valley as “must-sees” in its 2017 travel list, and for the fifth time, Peru in December 2016 was named the World’s Leading Culinary Destination at the World Travel Awards. Lima ranks with New York, London and Mexico City for its triple helping of the world’s best-ranked restaurants.
Peru’s international tourism inflows rose by 7.7% in 2016, according to the World Tourism and Travel Council (WTTC) “Economic Impact 2017 Peru” report, posting faster growth than anywhere else in the Americas, and above the global average of 3.9%.
Sky’s The Limit
According to the WTTC, Peru’s travel and tourism sector was directly worth PEN25.7bn ($7.6bn) in 2016, or 3.9% of GDP, a figure which is estimated to rise to 5% of GDP within a decade. The sector’s total contribution — direct plus indirect — was put at PEN66.2bn ($19.6bn), a considerable 10.1% of GDP. This is forecast to reach almost 12% of GDP by 2027, making tourism one of the country’s critical sectors. To put this in context, mining, one of Peru’s most important sectors, accounts for 15% of GDP. Moreover, as a labour-intensive industry, tourism will be a significant source of job creation in the short and medium term. The sector directly supported 403,500 jobs in 2016, according to WTTC estimates, with this number estimated to rise to 589,000 by 2027. Including indirect employment, tourism supported nearly 1.3m jobs in 2016, and with this figure forecast rise to 1.9m, the sector is set to account for almost 10% of total employment in Peru within the coming decade.
According to the WTTC, visitors come mainly for pleasure, in search of adventure, food, history and culture. Leisure tourism spending accounted for over four-fifths (82%) of travel and tourism GDP in 2016, for a total of PEN40.6bn ($12bn), and this is expected to rise by 5.7% per year in the coming decade to reach PEN73.2bn ($21.7bn) by 2027. By contrast, business travel spending accounted for 18% of sectoral GDP in 2016, or PEN8.9bn ($2.6bn) and is expected to grow a little more slowly (4.5% per year) to reach PEN14.5bn by 2027 ($4.3bn). Another important consideration for policymakers and investors is that domestic travel and tourism by Peruvians is immensely important and is also growing steadily. By way of illustration, domestic travel spending generated 70.2% of direct travel and tourism GDP in 2016, compared with 29.8% for foreign visitor spending. By 2027 the domestic travel spend is expected to reach about PEN53bn ($15.7bn).
However, foreign visitor spending or visitor exports, which generated PEN14.8bn ($4.4bn) in 2016, and represented 10.3% of total exports, is projected to grow more rapidly in the coming decade – at a rate of 8.5% per annum — to reach PEN34.7bn ($10.3bn) by 2027, or 12% of total exports, according to WTTC figures. Therefore, overall tourism spending in Peru could reach $27bn by 2027. While domestic tourism will remain the base, foreign visitor spending is projected to increase twice as fast in the coming decade.
Regional Destination
Five feeder countries accounted for 58.5% of Peru’s overseas visitors in the first 10 months of 2016 — Chile, the US, Ecuador, Colombia and Venezuela — but there were also increased visitor numbers from Mexico. Indeed, arrivals from Pacific Alliance countries, namely, Chile, Colombia and Mexico, made up 36% of total international visitors between January and October 2016, helped by efforts to facilitate travel within the four member countries.
Overall, arrivals from South Americas grew by 8.3% in the same period, with Chileans making up the largest group, while arrivals from North America were up by 8.2%, led by the US. European arrivals rose by 6.4%, accounting for just under 17% of total international visitors, driven by growth in visitors from Italy, the UK, Spain, the Netherlands and France. Lastly, arrivals from Asia and Oceania grew by 2.3% to October 2016, accounting for 5.2% of foreign arrivals. The strongest increase was from China, with a double-digit spike in growth of 26%, followed by Australia and New Zealand.
Ambitious Targets
The new government led by President Pablo Kuczynski is aiming very high for the tourism industry, which generates the most foreign exchange income after mining and agriculture. The newly elected government set an ambitious target of 7m tourists by 2021, which would suggest almost a doubling of numbers from the 3.7m recorded in 2016.
This implies steady and sustained growth of at least 10% per year in tourism, a little over WTTC forecasts. The official target for 2017 is for the number of tourist visits to reach 4.3m, another new record. “Reaching 2017’s official target could be hampered by the economic circumstances in Brazil and Mexico, two important markets for Peruvian operators,” Enrique Quiñones, general manager of tourism operator Viajes Pacífico and president of the Peruvian Association of Receptive and Internal Tourism Operators, told OBG.
Quiñones suggests that the ongoing devaluation of the Mexican peso, together with Brazil’s economic crisis, will result in less tourists visiting from those two countries. “A significant increase in Chinese visitors, on the other hand, could make up for a decrease of tourists from the region,” Quiñones told OBG.
While bold, the government is confident that it can reach the 7m target by 2021-22, driven by growth not only from the traditional Latin American, European and North American source markets, but also by increasing visitor numbers from China and India, facilitated by the recent relaxation of some visa requirements.
Promoting Peru
Tourism promotion, both at home and abroad, is the responsibility of the Commission for the Promotion of Peruvian Exports and Tourism (Comisión de Promoción del Perú para la Exportación y el Turismo, PROMPERÚ), which is financed mainly through a tax on incoming airfares.
Policy guidelines come from the Ministry of Foreign Trade and Tourism (Ministerio de Comercio Exterior y Turismo, MINCETUR), which is now led by Eduardo Ferreyros. The sector has continued to expand rapidly and increase its contribution to overall GDP without the institutional support of a dedicated ministry. This is testament to the organic strength of the sector, deriving from Peru’s unique offer.
Nonetheless, there is still a demand from within the sector to see the establishment of a dedicated tourism ministry. Such a move would serve to better facilitate the industry’s potential, as well as to offer specialist support for its professionalisation, long-term development and sustainability.
Policy Pillars
The keywords for tourism policy under the new administration are diversification and decentralisation – to make it known to the world that Peru is more than Machu Picchu and the Sacred Valley. A full 85% of incoming tourism is concentrated in the “Southern Tourist Circuit”, according to MINCETUR data, with Cusco alone representing 80%.
The Kuczynski administration is also aiming to promote safe and sustainable tourism, as per the WTTC’s designation of 2017 as the year of sustainable tourism. Speaking to OBG in February 2017, Julissa Roca Llanos, tourism market intelligence specialist at PROMPERÚ, and Celia Durant Caballero, tourism market intelligence coordinator at PROMPERÚ, identified several important strategic policy pillars, noting that, from their perspective, there are 25 regions in Peru, and therefore 25 markets to be developed.
Border Tourism
Another possible segment for expansion is the significant border tourism in Peru, with thousands of daytrippers and holiday makers coming in from Chile in the south and Ecuador in the north, as well as from Bolivia to the east.
Chileans in particular converge on Tacna, where there is a thriving casino and retail sector; they also go specifically for the local food and gastronomy, in addition to some of the area’s competitively priced services, including medical services, which has led to an emerging medical tourism industry.
Overseas Peruvians returning home for holidays and to visit family also make up a large percentage of cross-border visitors. Authorities aim to build and expand upon these existing flows in order to encourage repeat visits, and to entice these visitors to extend their stay and explore further. In support of this, further efforts are under way by the country’s migration authority, the National Migration Superintendence, to ease border entry procedures, for example.
In a bid to boost food tourism in border zones, PROMPERÚ ran a second food fair in Tacna in late April and early May 2017. Perú, Mucho Gusto (Peru, Nice To Meet You) was a success, attracting 33,000 visitors, including some 8500 Chileans, according to Ferreyros. This was more than double the number of the last fair two years ago. Ferreyros emphasised the huge importance of Chilean visitors, noting that they made up the majority of the 3.7m tourists to Peru in 2016.
There were 104 stands at the fair representing 21 of the 25 regions of Peru. The stands included restaurants, bars, juice stands, food trucks and artisanal food producers, with various prizes awarded including for the best traditional dishes and most innovative recipes. The fair also served another purpose; promoting the Quechua Sun festival, Inti Raymi, celebrated in June every year marking the winter solstice.
Enter Low-Cost Carriers
The advent in Peru of low-cost airlines, notably Viva Air Perú, owned by the leading European low-cost carrier RyanAir, is expected to transform domestic travel in the country, where internal flights have long been overpriced and limited in routes. Viva Air Perú, which saw its website unable to cope with demand upon its launch in March 2017, has won initial approval for 11 internal routes.
Currently the airline operates just nine routes, from Lima to Arequipa, Chiclayo, Cuzco, Iquitos, Piura, Tarapoto and Trujillo. In the future there will also be flights from Arequipa to Cuzco and Tacna. “Opening new routes between secondary cities will result in an increase of demand as flying becomes accessible to more people,” José Castellanos, general manager of Viva Air Perú, told OBG. “Flying is no longer a privilege. It is a need, and as such airlines must be able to match market needs with low costs.”
Viva Air Perú’s first commercial flight took off on May 9, 2017, two months after its first batch of seats were sold out, with a flight from Lima’s Jorge Chávez International Airport to Iquitos. William Shaw, the CEO of Viva Air Perú, said the launch, attended to great fanfare by President Kuczynski, marked “a before and after” for Peruvian travellers. President Kuczynski said the Peruvian air market was going to “tremble a bit, because there will be huge competition.”
Indeed, in the run up to its first flight, the Peruvian Association of Airline Companies lodged a complaint with the National Institute for the Defence of Competition and the Protection of Intellectual Property, alleging false advertising by Viva Air Perú. However, Shaw dismissed the complaint. Certainly, existing carriers in the Peruvian market will have to change their tactics moving forward. Viva Air Perú, owned by Declan Ryan of Irelandia Aviation, the son of RyanAir founder Tony Ryan, can draw on extensive experience in the competitive European market, where RyanAir is the leading low-cost carrier and has reshaped the market. This is Irelandia Aviation’s third venture in Latin America, with the company establishing a presence in Mexico in 2006 with VivaAerobus, and in Colombia since 2012 with VivaColombia.
In its first 14 days of sales Viva Air Perú sold over 27,500 tickets, approximately 2000 a day. The airline aims to carry 700,000 passengers in its first year and believes that the number of air passengers in Peru could rise by 40% in that period. Since Viva Air Perú began selling seats across its routes from just PEN60 ($18), rival carriers have also been cutting their fares, including the dominant LatamPerú, which has 50% of the market. Viva Air Perú estimates that its arrival in the market will slash the cost of air travel in Peru by half.
If the experience of low-cost air travel in Europe in the past three decades is anything to go by, the knock-on benefits for travel and tourism — particularly in more remote tourist zones — will also be strongly positive. The airline is aiming for 15% of the market within the year, according to Shaw. Meanwhile, MINCETUR is hoping to see Argentina’s Austral, Brazil’s Gol and Chile’s Sky Airline likewise connect with more provincial cities, including Arequipa, Cusco, Iquitos and Chiclayo. “Chiclayo’s geographical location near the rainforest and the coast make it a potential connectivity airport for many airlines,” Castellanos told OBG.
The Kuczynski government has also given the go ahead for the long awaited new Chinchero airport, to serve Cusco. While a start date for the works has not yet been confirmed, the new facility is expected to be completed between 2021 and 2022. The plan is for Cusco and other regional airports to take some of the overspill from the country’s saturated main international airport, Lima’s Jorge Chávez International Airport, where a long-awaited expansion to include a second runway and terminal is still pending formal approval under current administration and simultaneously contribute to regional development. QHAPAQ ÑAÑ: Also chief among the tourism diversification plans is an emphasis on rural as well as eco- and adventure tourism in places like Puno, Arequipa, Cusco, Ayacucho, Huánuco, Áncash and Cajamarca. Plans well under way to promote the Qhapaq Ñañ, the extensive Incan network of trails, which linked the Incan capital Cusco north and south to the rest of the empire. In 2014 Qhapaq Ñañ was awarded World Heritage Status by UNESCO, a designation that came with muchneeded restoration funds. As the trails and pathways are brought back into use, PROMPERÚ and MINCETUR are developing hiking, bird watching and ecotourism packages around the Qhapaq Ñañ experience. KUÉLAP & AMAZONAS: The pre-Incan Kuélap fortress, in Chachapoyas (Amazonas), is the third big promotional priority for 2017. In early March 2017 President Kuczynski opened the country’s first ever cable car service, taking visitors much more quickly and safely up to the fortified citadel, which sits 3000 metres above sea level on the slopes of the Andes. Kuélap, one of the largest ancient monuments in the Americas, was the political centre of the Chachapoyas civilisation, a pre-Columbian culture that flourished in the region from around about 900 to 1400 CE. The 4km-long cable car service has 26 cabins. Each one can hold eight passengers, and the service can transport up to 1000 visitors per hour. It will cut the transfer time to just 20 minutes, from 90 minutes by car, or a three-hour hike. The round-trip ticket will cost about PEN20 ($6), according to MINCETUR. The $21.7m project was developed by MINCETUR as a public-private partnership. The aim is to use Kuélap to create a new tourist centre in the entire northern area, including in Amazonas and the remote Loreto region.
Kuélap was heavily promoted in May 2017 at the Peru Travel Mart in Lima. The 2017 fair brought together travel and tour operators from 33 countries with 135 Peruvian operators from all over the country, including Arequipa, Ica, Lima, Loreto, Madre de Dios and Puno.
According to a tourism trends report prepared by Axon Marketing and Communications, 72% of Peruvian tour operators expect sales to increase in 2017, notwithstanding some temporary disruption from the floods emergency in the north of the country. With most tourism activity concentrated in the south of the country, however, the sector will be relatively insulated from the crisis, and indeed will eventually stand to benefit from additional investment in upgraded national infrastructure under the reconstruction plans unveiled by the government in late April 2017.
The report names Peru as the most popular destination for South American travellers, accounting for 52% of total information requests. By channel, people sought information first and foremost from the internet, followed by friends’ recommendations, advice from travel agents and newspaper articles.
According to the WTTC, sectoral investment in 2016 was PEN7.4bn ($2.2bn), or 4.7% of total investment in the country. This is expected to rise by 4.6% per year over the coming decade to reach PEN12.3bn ($3.6bn) by 2027, when it will account for at least 5.1% of total investment. MINCETUR seeks an ambitious $1.5bn in infrastructure investment through to 2021. Among its latest measures, MINCETUR has created a new $3m fund, Turismo Emprende, to help co-finance small private sector tourism projects.
The fund aims to place a special emphasis on promoting micro-, small and sustainable tourism projects in remote areas and communities, in support of the diversification of the sector. MINCETUR will monitor those projects that qualify for financing and subsidies, including with technical support.
Another MINCETUR initiative is the so-called Single Tourism Window (Ventanilla Única de Turismo, VUT), which aims to reduce bureaucratic hurdles for investors by amalgamating the various procedures required into one electronic window across all administrative levels. MINCETUR aims to include up to 100 administrative procedures in the VUT by July 2017, and to roll out the system in 25 local authorities. MINCETUR hopes that the VUT will help unlock upwards of $3bn of new investment in the hotel sector alone. Ferreyros told local press “the aim of this initiative is to continue carrying out actions that minimise bureaucracy while offering better services to the citizens”.
Premium Sector
According to PROMPERÚ’s tourist profile, well over 500,000 foreign visitors to Peru fall into the premium category, equating to a minimum spend of $1000 on an average 10-day trip. The overall spend by premium visitors in 2016 was upwards of $2bn. According to PROMPERÚ, this places Peru above Brazil as the country in South America in which foreign tourists spend the most. A full third of these visitors came from the US, followed by travellers from France, Canada, Spain, the UK, Australia and Germany.
The biggest spenders, however, are Asian tourists, who spend $2000 each per trip, on top of the $2000 that they typically spend on flights and accommodation. An estimated 65% of premium visitors travel to the interior of the country independently, according to PROMPERÚ. Among premium visitors from Latin America, this proportion rises to 82%, reflecting more familiarity, confidence and ease in getting around. Notably, PROMPERÚ found that only 18% of premium visitors stayed in four- and five-star hotels, while 41% stayed in three-star lodgings. While this may be a choice, it does also underline a lack of premium options available to travellers, particularly outside of Lima and Cusco.
Lima
Lima, for decades a stop-over for tourists en route to the south, is now very much a tourist destination in its own right, welcoming 2m visitors a year. For Latin Americans in particular, Lima is a top weekend destination, with its gastronomy as the main draw.
According to Peru’s gastronomy association, Sociedad Peruana de Gastronomía (Apega), the food industry generated over PEN25bn($7.5bn) in 2016. At the second UN World Tourism Organisation World Forum on Gastronomy Tourism, held in Lima in late April 2017, Ferreyros called for the public and private sectors to work together in support of research and innovation, education, training and professionalisation. Mariano Valderrama, the general manager of Apega, identified the main challenges facing the Peruvian gastronomy sector as a lack of technological innovation, continuing informality, an undeveloped training and education sector, and a lack of general knowledge about healthy food and nutrition. “Complacency would be our worst enemy,” he stressed, urging young people in particular to keep learning and stay engaged.
Among those at the congress was the Mater Iniciativa, the biological and cultural investigative centre behind the celebrated Peruvian chef Virgilio Martinez’s Central restaurant, as well as leading international US and European food associations.
Mice
Carlos Canales, president of the capital’s new convention bureau, the Lima Convention and Visitors Bureau, expects Lima to generate $1.5bn in 2017 from business and convention tourism, formally known as the meetings, incentives, conferences and exhibitions (MICE) segment. In the first quarter of 2017 alone, MICE activity was up by 23% year-on-year, he reported, with 38 events in all, including 27 International Congress and Convention Association-approved events.
Lima has seen growth in the MICE sector of between 24% and 28% every year since 2012, Canales pointed out. He and others in the sector are keen that the new Lima Convention Centre be incorporated into the offer as soon as possible. A permanent operating company for the centre, officially opened to host the IMF and World Bank meetings in Lima in October 2015 but since inoperative, has yet to be appointed. The MICE sector is lucrative across the board.
For instance, while an average tourist spends $120 per day, a business tourist will have a budget of $580 a day for a typical five day-stay in Lima, with the city’s renowned restaurants and museums topping their list of things to do in the city, according to MINCETUR. Canales also calculates that investment in the hotel sector in Peru will exceed $3bn by 2021, with 60% of that concentrated in Lima. From 2010 to 2016 investment was $2.5bn, underpinning strong average growth of 10% a year in the sector. But with occupancy rates rarely below 85% in the central Lima district of Miraflores (and 75% in neighbouring San Isidro), demand and prices remain high. While foreign brands are increasingly represented in Lima, investment in the hotel sector is very much a local affair, with 98% of the capital domestic (mostly linked to the construction sector). This has positive multiplier effects, both for the short and medium term.
Looking Ahead
Peru’s bicentenary is in 2021 and plans are underway to mark the occasion. Currently under construction is a major new museum, the National Museum of Archaeology in Peru (Museo Nacional de Arqueología del Perú, MUNA), in the desert Sanctuary of Pachacámac, an important preInca archaeological site in the district of Lurín, about 40 minutes south of central Lima, just off the old Pan American Highway. Pachacámac, formerly one of the most important religious sites in all of Peru, is home to ancient pyramids, temples and plazas overlooking the Pacific Ocean. This emblematic site is already home to a museum, the Site Museum Archaeological Sanctuary of Pachacamac, recently renovated and extended.
The extensive new MUNA, which is being backed by UNESCO, will house some 500,000 pieces of Peru’s pre-hispanic and contemporary heritage, most of which has lain in cold storage for decades and has never before been seen by the public. The campus-sized facility will also house libraries, workshops spaces and advanced research and conservation facilities. Salvador del Solar, the minister of culture, is leading a plan to regenerate and upgrade Peru’s network of museums in the run-up to 2021 and sees the MUNA as the central pillar of this plan, which aims to protect Peru’s immense cultural history for future generations to come. As part of the plan, the existing National Museum of Archaeology, Anthropology and History of Peru, the oldest in the country and located in the charismatic old Pueblo Libre district of central Lima, will also be upgraded and modernised and thereby secured for the future.
Despite its cultural patrimony and world heritage, which rivals the likes of Egypt, Peru has long lacked a national museum of this scale and importance. Speaking to OBG in February 2017, the young Peruvian architects who won the international competition for the museum in July 2014, Alexia León and Lucho Marcial, likewise underlined the importance of the project for Peru, noting that “nothing else like this is currently being built anywhere in Latin America right now”.
The new MUNA, which gave Peru a museum to rank alongside the big international museums of Europe, the US and Asia, is set to be an significant set piece of the 2021 celebrations, and an important focus of the country’s cultural and tourism sector long thereafter.
Outlook
Already known as a stand-out in the region and blessed with historical and natural wonders, Peru now faces the challenge of maintaining momentum as an international destination, increasing the number of visitors from outside the region and allowing the sector to contribute with larger portion of the GDP.
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