Famous for the Machu Picchu archaeological site and its rich gastronomic history, Peru is one of the fast-growing tourist destinations on the planet. Having won the “World’s Leading Culinary Destination” title for the seventh consecutive year at the World Travel Awards in December 2018, the country was also named the “World’s Leading Cultural Destination” for the first time at the ceremony.
While Peru’s rich and diverse cuisine indeed continues to attract visitors, demonstrated by a range of quality eateries in Lima and the proliferation of Peruvian restaurants around the world, Machu Picchu remains the number-one attraction for visitors. Named the “World’s Leading Tourist Attraction” for 2018, the historical site is seeing faster-growing tourist rates than the country overall.
Herein lies the main challenge for the industry: diversification. Greater connectivity and infrastructure efforts in other regions – particularly the north – is hoped to pull tourists to different parts of the country and see them engage in adventure and nature tourism in addition to visiting cultural sites.
Uninterrupted Growth
From just 1.1m people entering the country in 2001, Peru has experienced uninterrupted annual growth in international visitors for the last decade and a half. In 2018 an additional 387,091 foreign travellers visited the country compared to 2017, bringing non-resident tourists to 4.4m – a record for Peru, according to the Ministry of Foreign Trade and Tourism (Ministerio de Comercio Exterior y Turismo, MINCETUR). This represented an increase of 9.6%, putting Peru’s progress ahead of the 6% growth in international tourists globally, according to the UN World Tourism Organisation (UNWTO). Peru stood out in what was a strong year for tourism, with the rate of growing visitor numbers worldwide outpacing global GDP growth of 3.7%. Peru’s visitor growth was triple the average expansion rate of 3% recorded by the Americas.
Peru maintained its position as the fourth most-visited country in South America, behind Argentina, Brazil and Chile. It was able to widen the gap to beat fifth-placed Colombia, which saw visitor numbers grow from 4m to 4.3m in 2018. One phenomenon that contributed to lifting the continent’s visitor numbers is the heavy flow of Venezuelans fleeing economic crisis and arriving as tourists in countries such as Peru and Colombia. The number of Venezuelan arrivals to Peru jumped from 59,192 in 2016 to 196,495 in 2017 and 367,739 in 2018. While Venezuelan tourist numbers were down by 30.5% year-on-year in the first quarter of 2019, the year is still on track to be the best ever for foreign tourism figures. In the first quarter, visitor numbers were up by 2.1% over the equivalent period of 2018.
The UNWTO predicts global international visitor growth of 3-4% in 2019, but the Peruvian government is forecasting an increase of 9% to 4.8m visitors. Given the North American and European summer break, July and August are traditionally the months with the highest volume of foreign tourists in Peru, followed by December due to the Christmas holiday and the South American summer.
Economic Impact
This strong sector expansion has led to increasing amounts of foreign currency entering Peru via tourism, with the total spend of visitors in the country nearly quadrupling since 2004 to $4.9bn in 2018. Currency spend by visitors grew at an average of 5.4% between 2015 and 2017, and by 7% in 2018 – the highest annual increase since 2013. In a February 2019 government press release, Édgar Manuel Vásquez Vela, the minister of foreign trade and tourism, said that he expected growth of 7.8% in tourism-driven foreign currency flows in 2019, equalling around $5.3bn.
The rationale behind the forecast is explained by Marisol Acosta, director of tourism at the Commission for the Promotion of Peruvian Exports and Tourism (Comisión de Promoción del Perú para la Exportación y el Turismo, PromPerú), part of MINCETUR. “We are not only seeking to increase the number of visitors to Peru but also to lift the amount that tourists spend and how long they stay in the country, given the well-known benefits they bring to the economy,” she told OBG. After such consistent growth, the government has set some ambitious objectives: MINCETUR is targeting 5.6m foreign visitors by 2021, which is expected to bring in more than $6bn in foreign currency.
Increasing tourist spend would also ensure that the sector has a greater effect on the broader economy. The “Travel and Tourism Economic Impact 2018 Peru” report by the World Tourism & Travel Council (WTTC) ranked Peru’s tourism sector 46th out of 185 countries in terms of its proportional contribution to GDP based on 2017 figures. The size of the country’s tourism sector is difficult to define as it is not counted as its own economic activity in the national accounts and therefore does not appear in data compiled by the central bank. Rather, tourism activity traverses several segments, including transport, services and hospitality.
Nonetheless, the WTTC’s 2018 report estimated that Peru’s travel and tourism sector was worth PEN26.5bn ($8bn) in 2017, or 3.8% of GDP, and that it could reach 4.2% of GDP by 2028. When including indirect contributions, the WTTC valued travel and tourism at 9.8% of GDP based on 2017 figures. A May 2019 press release from MINCETUR confirmed the organisation’s direct figure, saying that the sector contributes 3.9% to GDP. It also estimated that the sector was responsible for more than 1.4m jobs across a “broad supply chain”, particularly stemming from small and medium-sized enterprises. Moreover, tourism is “directly benefitting the visited regions and empowering the female workforce”.
The government has embarked on efforts to formalise those involved in the sector, which has seen the number of registered tourism providers rise from 12,448 at the end of 2016 to 17,200 in January 2019. MINCETUR has established a tourism directory of service providers, and hopes to increase the number of registered workers by 15% in 2019 across travel agencies, restaurants, hotels and guide companies.
Source Markets
A handful of 12 countries account for 70% of visitors to Peru: Chile, the US, Ecuador, Bolivia, Brazil, Canada, Germany, France, China, Australia, South Korea and the Netherlands. Neighbouring Chile has long been Peru’s main source of international visitors, and the 1.2m Chileans who arrived in the country in 2018 represented 26.2% of the total. Second is the US, with 641,280 visitors in 2018 representing 14.5% of all foreign arrivals – a percentage that has slipped from 20.6% in 2004. According to Carlos Canales Anchorena, president of the National Chamber of Tourism (Cámara Nacional de Turismo, CANATUR), Peru is not making the most of this market. “The US is large enough for us to reach at least 1m visitors,” he told local media in April 2019. Canales suggested that more dynamic promotion, targeting tourists with higher educational attainment and alliances with airlines should be employed to achieve the figure.
Japan is the only significant source market to have shrunk in recent years. From a peak of nearly 68,000 visitors in 2013, approximately 47,000 Japanese travellers came to Peru in 2018, and year-on-year numbers were down by 14.4% in the first quarter of 2019. “We need to reformulate our strategies to capture young Japanese people who are able to come to our country,” Canales said.
Peruvian tourists, meanwhile, account for 72% of tourism spending in the country, according to a December 2018 report by the WTTC titled “Domestic Tourism Importance and Economic Impact”, which analysed 31 countries. This is a far smaller percentage of the market than in Brazil – which relies on domestic spending more than any other destination – at 94%, and Argentina at 87%. However, it is significantly more than Colombia’s 57%. In its February 2019 press release, MINCETUR forecast that domestic tourism will flourish from an estimated 47.7m trips that year to 52.6m by 2021. “Internal tourism contributes to the redistribution of wealth and has a multiplying effect on employment, directly impacting local economies,” Vásquez Vela said.
China Focus
A report published in 2018 by MINCETUR titled “China: A rising market” valued the global spend of Chinese travellers at $234bn in 2017, and cited the China Outbound Tourism Research Institute’s estimate of 50m Chinese citizens having the purchasing power to visit South America. The number of Chinese travellers visiting Peru increased by 22% in 2017 to 31,408 and by 20.2% in 2018 to 37,740. Excluding the anomalous case of Venezuela, the 2018 expansion was the greatest percentage increase among countries sending 10,000 or more visitors to Peru each year. Indeed, Peru is gradually taking a greater share of Chinese tourists in South America, as the overall number of Chinese visitors to the continent grew by 10% in 2018 to 276,000. In the first quarter of 2019 Chinese tourist numbers were up by 10.8% year-on-year.
Asian countries as a whole dominate the fastest-growing source markets for Peru. In 2018 the number of visitors from Hong Kong grew by 38.6% – faster than any other source market besides Venezuela. India was the next-biggest growing source market, with a rate of 21.4%, followed by Taiwan with 18.1%. Visitor numbers from South Korea have also increased over the years, from 14,000 in 2013 to more than 32,000 in 2018.
Although China represented just 0.85% of the total visitors in 2018, there is clear reason to believe the market will continue to grow. While the 40-65 age range dominates visitor numbers at the moment, MINCETUR’s report says that millennials — which it classifies as those born between 1980 and 1989 — should become the second most-important group of Chinese tourists by 2020. Per the report, young people are becoming interested in visiting countries like Brazil and Peru thanks to these destinations featuring in reality television shows.
Younger Chinese visitors are the type of high-spending tourists that can have a material impact on the economy. According to MINCETUR, the $2223 that Chinese tourists spent on average in 2017 was second only to Australian tourists who spent an average of $2940. Such has been Peru’s focus on China that its marketing campaign in the Asian country earned a gold medal at the annual Chinese Tourist Welcome Awards in May 2019. PromPerú’s strategy aims to attract “high-spending Chinese travellers, mainly in the growing segment of independent travellers and those used to visiting far away places who are willing to spend important amounts if the experiences are attractive,” the agency said in a press release that month.
Airborne
Speaking on what was needed for Peru to post even stronger tourism figures, Acosta of PromPerú highlighted that the country was working to become better connected to the rest of the world. “We have several projects under development to improve connectivity, including a modernised international airport in the capital city with greater capacity,” she told OBG. A total of 11.9m passengers flew in and out of Peru on international flights in 2018, 8.3% more than the previous year, with 98.9% passing through Lima. Meanwhile, around 12.7m local passengers flew within the country in 2018, compared to 11.7m in 2017.
There are signs that Peru’s aerial connectivity is improving. In March 2019 the country registered 3476 international flights, 8% more than in the same month of 2018. Chile is the best-connected country to Peru by air, with 567 flights that month shuttling travellers to and from Santiago and Antofagasta. Flights between the US and Peru represented the second-highest share of movements, at 472. US cities with strong connections to Peru include Atlanta, Dallas, Fort Lauderdale, Houston, Los Angeles, Miami, New Jersey, New York and Orlando. Colombia was the third best-served country in March 2019, as 435 direct flights connected Bogotá, Medellín, Cali and Cartagena with Peru.
While Colombian airline Avianca announced its withdrawal from most of the Peruvian market in February 2019 as it curtails its growth ambitions generally, other players are eyeing new opportunities in the country. With airport operator Aeropuertos del Perú investing $1.5bn in regional airports, new routes are being added to secondary cities. For example, low-cost carrier Peruvian Airlines began operating the first commercial flights to Ilo, in the southern region of Moquegua, in December 2018.
Other low-cost providers are also present in the market: Viva Air – owned by Irelandia Aviation – began operating in the country in 2017, while Chile’s Sky Airline launched its Peruvian subsidiary in April 2019. However, LATAM Airlines, the result of a 2012 merger between Chile’s Lan and Brazil’s Tam, continues to serve more than half of the domestic market. The carrier operated 57.6% of local flights in 2017.
Hotels
In hand with increased international flights, the number of foreign tourists staying at hotels has also risen significantly – although in percentage terms growth in hotel arrivals has slightly lagged visitor numbers over the past 15 years. Between 2004 and 2018 international hotel arrivals in Peru tripled, from 2.7m to 8m per year, while international visitors to the country grew by 3.3 times over the same period.
Indeed, although visitor numbers have enjoyed uninterrupted growth during those years, the number of total overnight stays by international tourists has fluctuated. After peaking at 15.4m in 2013, it decreased to 13.5m in 2014, rebounded to 14.8m in 2016 and ended 2018 at 14.3m. However, hotel stays by domestic travellers have continuously risen; overnight stays by Peruvian tourists reached an alltime high of 59.5m in 2018.
Hotel capacity has also grown consistently to reflect the sector’s development. The number of accommodation establishments increased from 9000 in 2004 to 22,100 in 2018, an expansion of 146%. This aligns with growth in available hotel rooms of 109% over the same period, from 142,000 to 296,800, and a similar 108% growth in available hotel beds from 248,700 to 516,200.
According to Canales, some $2.6bn worth of private investment in three-, four- and five-star hotels has been scheduled since 2016 leading up to the country’s bicentennial in 2021, with around 60% of the capacity slated to go up in Lima. The most popular cities for hotel stays include the capital, Arequipa, Puno, Tacna and Ica, all in the southern half of the country (see analysis).
Over Capacity
Machu Picchu, the 15th-century Inca citadel, was first voted one of the seven new wonders of the world in 2007 and is undoubtedly the jewel in the crown of Peru’s tourism industry. Declared a Peruvian Historical Sanctuary in 1981 and a UNESCO World Heritage Site in 1983, Machu Picchu is situated on a mountain ridge 2430 metres above sea level in the Cusco region.
Visitors to the site continue to grow at a faster rate than the number of visitors to the country overall, despite the tourist board’s efforts to diversify Peru’s offering and draw travellers to other regions (see analysis). In 2018 around 1.6m people visited Machu Picchu – a 12% increase on the previous year and significantly more than the 2500 daily limit recommended by UNESCO, which would equate to 912,500 people per year. As recently as 2011, yearly visitors to Machu Picchu numbered approximately 980,000, pointing to a startling pace of growth.
Some 78% of visitors in 2018 were non-residents, and this segment grew by 15% that year. Tourists from the US made up the largest share of visitors, followed by Brazil, Chile, Argentina and France. The number of domestic tourists visiting the site, meanwhile, rose by 3%. The peak year for local visitors was in 2016, with just over 400,000.
Authorities are aware that control is required for the site to maintain its majesty, and concerns related to Machu Picchu’s sustainability are not a new phenomenon. Visitor restrictions have been in place since at least 2000, while UNESCO warned as far back as 2007 that the site was at risk of being put on its list of World Heritage Sites in Danger.
The regional government already closes access to the Inca Trail — the four-day hiking route between Cusco and Machu Picchu – each February for maintenance, but officials have stepped up measures in recent years. This included splitting tickets between morning and afternoon shifts in 2017, and mandating that visitors enter with a certified guide. Rules became stricter on January 1, 2019 to avoid overcrowding and physical degradation of the site, with tourists having to book hour-specific time slots and allowed to stay for only two hours.
On May 15, 2019 the local authorities began a pilot scheme that limited access to each of the three structures that make up the citadel. From May 15 to May 21 the Temple of the Sun was only accessible between 7.00am and 10.00am; the Temple of the Condor from 10.00am to 1.00pm; and the Pyramid of the Intiwatana from 1.00pm to 4.00pm. From May 22 to May 28 the schedule was revised, with the Temple of the Sun accessible 1.00-4.00pm; the Temple of the Condor from 10.00am to 1.00pm; and the Pyramid of the Intiwatana 7.00am to 10.00am. The Cusco tourism authorities, alongside industry representatives, monitored the results of the pilot scheme and were set to implement some measures on a permanent basis beginning on June 1, 2019.
New Service
Given the need to control visitor numbers, plans to build the Chinchero Cusco International Airport near the site sparked a strong reaction from many. Former president Ollanta Humala proposed the facility in 2012, and the clearing of land in April 2019 suggests that the project is moving closer to reality. Carlos Oliva, the minister of economy and finance, told local press that month that the airport would be built as soon as possible as it is vital for Cusco, adding that there was a series of technical studies to support the airport’s construction (see Transport chapter). Existing air access to Machu Picchu is via Alejandro Velasco Astete International Airport in Cusco, located some 80 km from the attraction. Visitors then either catch a bus or a train, or trek by foot.
Speaking to local media in April 2019, Canales stressed that although land was cleared, construction was not imminent as the government had not yet put the contract out to tender and the final terminal design was still awaiting approval. Nonetheless, environmentalists, archaeologists and even pilots voiced their opposition. Critics argue that planes flying low over nearby Ollantaytambo and its large archaeological park would cause damage to the Inca ruins there and disrupt the Sacred Valley. “A new airport on the doorstep of Machu Picchu threatens to destroy Peru’s most important tourism destination,” Justin Francis, CEO of UK-based firm Responsible Travel, wrote on the company blog. “When we look back at what went wrong with tourism, this will be the story that sums it up.”
Outlook
Francis says the solution should be for Peru to “focus on developing and marketing its remarkable heritage into a wider offer, to spread the tourists and their money more widely”, and this is precisely what officials are working on. A focus on hotel investment and better air connectivity in different regions of the country, particularly the less-explored north, is drawing tourists’ attention to adventure, nature and culinary offerings beyond the well-known cultural sites (see analysis). Such developments, coupled with campaigns targeting source markets with high potential, is set to continue the trend of strong tourism growth, while ensuring even geographical distribution of the sector’s economic benefits and the sustainability of Peru’s attractions.
Read More from OBG
