Although the Philippines brands itself as a destination of more than 7,000 islands, tourism industry investors have until recently focused most of their energy on the tropical island paradise of Boracay.
Discovered by backpackers in the 1980s, the small island in the Western Visayas that boasts long stretches of spectacular white-sandy beaches has become the country’s most developed tourism location, attracting more than 60 percent of the country’s foreign leisure travelers. In 2007 it attracted more than 600,000 visitors, 8 percent more than in 2006.
In contrast to the rest of the country, Boracay, with a capacity of over 2,000 rooms, caters to both luxury and budget segment travelers, and is well served by local airlines.
However, there is now consensus among local tourism insiders that Boracay has reached its saturation point and may lose its paradise appeal if it tries to accommodate larger volumes of visitors.
“Boracay is not like Bali in Indonesia. It is quite a small island that cannot expand to accommodate large numbers of visitors,” a local tour operator told OBG. The focus of tourism authorities is now on diversifying the country’s hospitality product range in order to reach the declared target of 5 million visitors by 2010. Although efforts have been made to promote alternative destinations, Boracay nevertheless continues to dominate the Philippine tourism industry.
Only Cebu has arguably managed to compete with Boracay. Established as the new gateway to the Visayas, the island enjoys a strategic geographical location, offering both an international airport and an array of small virgin islands off its coast The island hosted nearly 1.5 million visitors in 2007, 19 percent more than in 2006. However, it is important to note that most of these were business travelers. Cebu’s product range is much more limited than Boracay’s, as it is focused primarily on the high-end segment epitomized by such lavish international accommodation as Shangri-La’s Mactan Resort & Spa. It has also marketed itself successfully as a new destination for convention, diving and heritage tourism.
The new wave of travelers to the Philippines is most likely to come from mid-range budget travelers, supported by aggressive expansion of low-cost airlines; rising incomes in Asian countries, such as China; and an increase in long-haul travelers from Scandinavia, Germany and, most recently, Russia.
Indeed, the Philippines has been experiencing high growth in travelers from all over the globe. Most significantly, visitors from China rose by 194 percent from 2006 to 2007, as well as by 34 percent for visitors from Europe and 28 percent from the US. Overall growth has remained in the high single digits throughout 2008.
Yet, this falls short of some 600,000 new arrivals the country needs to attract to stay on track for its 2010 arrival target.
The industry as a whole shares the common problem of a lack of transport connectivity and local infrastructure that can cater to new arrivals. In the absence of prerequisite infrastructure guarantees, investors hesitate to put their money in new tourism destinations.
The World Economic Forum Travel and Tourism Competitiveness Report released in 2008 ranked the Philippines 86th in the world behind its regional rivals Malaysia, Thailand and Indonesia, due to low marks for infrastructure and business environment. This is in spite of its ninth ranking in terms of price competitiveness and high potential in human resources for the hospitality sector.
While there is no lack of recognition that the country urgently needs to upgrade its infrastructure, opinion seems to diverge on which tourist areas should be prioritized. Big-ticket spending has so far been limited to expanding the capacity of Ninoy Aquino International Airport in Manila, expected to become the main gateway for the country as a whole. However, this will not necessarily improve access to regional islands, the primary destination for foreign travelers. A majority of regional airports that are key to tourism expansion are still unable to accept larger international aircrafts, thus constraining growth and further investment.
A case in point is Palawan, which in 2007 was rated the best island destination in Southeast Asia by National Geographic Traveler magazine. It has long been considered the hottest new alternative to Boracay, offering pristine tropical nature, unique World War II shipwreck dives and white sandy beaches.
Palawan’s attractiveness as a new tourism investment destination was confirmed by Singapore-based Banyan Tree Holdings, which announced earlier in 2008 that it will invest approximately $70 million in two new resorts in Palawan. A number of local investors who have succeeded in Boracay are also targeting Palawan as the next big destination in the Philippines.
However, Palawan’s most attractive location, Coron—which has some of the best scuba diving in the world and is the site of one of Banyan Tree’s new resorts—is still served only by a handful of small low-cost airlines that fly between Manila and Coron’s Busuanga airport.
Thanks to active investment interest and help from regional authorities, the airport has recently seen its basic infrastructure upgraded in order to accommodate larger aircrafts. Yet international connectivity will remain limited as long as the airport is unable to handle a larger volume of traffic. Seats on smaller aircrafts often sell out, and flight schedules are not necessarily convenient for international visitors coming through Manila.
Even the popular Boracay, which enjoys several daily flights and more convenient flight schedules, is limited to smaller aircraft, constraining its flow of visitors.
As one local tour operator told OBG, “The development of the Philippine tourism industry is currently driven not by demand, but by capacity. If you remove the transport and infrastructure bottlenecks, investors will come and visitors will come.”
In particular, the country needs to further the growth in regional tourism from countries such as China, Japan and South Korea, which accounted for around 50 percent of visitors in 2007.
The onus is therefore on central and regional authorities to upgrade the Philippines’ infrastructure so as to diversify its tourism sector. This is necessary if the country is to break into the fast lane of the growing regional tourism market.
By Oxford Business Group