Record Arrivals as Tourism Shifts Gear

July 13, 2017 Nestor Licanto

BY ALL INDICATIONS, 2016 was a smashing success for the local tourism industry.  The Guam Visitor’s Bureau reported a record-breaking year for arrivals, as the 1.53-million visitors eclipsed the previous high set in 1997 of 1.41-million. But does breaking a 19-year old mark signal the beginning of a new era in the visitor industry, and if so, where does Guam go from here?
GVB data suggests that there has been a gradual shift in the visitor make-up over the past few years.  One illuminating statistic came in April of 2017. It showed that there were more Korean arrivals that month than there were Japanese, 53,517 to 49,834.  That is significant if only because the local industry was built around the Japanese, who have dominated the market for the past forty years.  From the beginnings of the industry in the 1970’s, the Japanese typically accounted for better than 80-percent of annual arrivals, and Japanese investors literally helped raise the industry from the ground up by financing an unprecedented hotel construction boom that began in the 1980’s.

But Japanese arrivals have plateaued in recent years, and are being challenged for the top spot by the fast-growing Korean market.  Actually, in terms of sheer numbers and percentage growth, it was Korea and the Philippines that excelled last year. According to GVB statistics, Korean arrivals soared to nearly 545-thousand visitors. The Philippines shot up with a 74.3-percent year-on-year increase, albeit with a much smaller total of 21,657 visitors.

Changing Trends

University of Guam professor Dr. Fred Schumann spent three years researching the reasons for the downturn in Japanese visitors, and recently released a new book entitled “Changing trends in Japan’s employment and leisure activities: Implications for tourism marketing.”  He said one of the main culprits is income uncertainty due to socioeconomic changes resulting from an aging and declining population.

“Whenever people are uncertain about their income, even if income doesn’t change, even if it’s not lowered, people will spend less because of the uncertainty. And so there are a number of factors leading to this income uncertainty in Japan, and I believe that’s held back the spending. And even perhaps the overseas travel choices,” Schumann explained.

According to Schumann’s research, Japan’s job market may have a lot to do with the decline in travelers to Guam, “in the past there were many people that had secure, regular employment status. But because of the high cost of regular employment, where they pay bonuses -- companies pay bonuses twice a year, and there’s a little more security for these regular employees -- now companies are not, they don’t hire as many of the regular employees anymore. In fact, approximately forty percent of Japan’s workforce is non–regular,” Schumann said.

Guam Visitors Bureau Boardmember Bruce Kloppenburg laments the decline in Japanese tourists, “In the GVB 2020 plan we had hoped to never go below 60-percent in Japan arrivals. We’ve failed in meeting that goal. This is manifesting itself now in reduced Government revenues,” Kloppenburg said. 

He continued, “I think it’s bad. Japan is a company-based industry, whereas Korea is a guide-driven industry. The FIT (free and independent traveler) market is on the rise whereas the conventional Japan travel business is eroding. In 1991, when JGTA (Japan Guam Travel Association) incorporated we had twenty-three members. Today we have six. The Korean market to a greater extent than Japan is a cash business. That is never good in any industry,” Kloppenburg argued.

Schumann suggests the changing market demographics might simply be due to a normal progression of the Japan and Korean markets, “Japan is a more mature market which had an earlier start for outbound growth. It still has a good number of outbound tourists and there still is a strong desire among the population to travel overseas. However, potential Japanese travelers are facing constraints, such as those brought on by demands from changing family dynamics, work, and increasing cost of education. Even though Korea has less than half the population of Japan, it is still a growing market and does not face the same issues facing Japan,” Schumann explained.

He points out that Korea had only 725-thousand outbound travelers in 1987, “After the 1988 Olympics in Seoul, it grew to over 1-million for the first time. We saw a similar growth pattern with Japan after the 1964 Olympics in Tokyo. Korean outbound increased to 10-million in 2005, and almost doubled to 19-million by 2015. Japan peaked in 2012 with almost 19-million outbound. Japan numbers have hovered around 16 to 17 million outbound over the last three years,” he said.

Regaining the Japan market

But Schumann says that doesn’t mean Guam can’t reverse the downward trend in Japan arrivals. To the contrary, he believes we are still well–positioned to regain much of the lost Japanese market, “It all sounds like its gloom and doom, but there are some great opportunities and that’s one of the main points of the book. There are other destinations like Guam that have depended on Japanese overseas travel. In fact, ten or fifteen years ago we had about 80, 85 percent of our visitors come from japan. And I was just looking at last month’s figures (April 2017); it’s under 50 percent now. But if we take a look at different market segments, and then target those markets, I believe that we can capitalize on some of the trends that are going on in Japan,” Schumann said.

Kloppenburg, who was born here, and whose father Earl was one of the pioneers of the visitor industry and started one of Guam’s first tour bus companies, believes that the government and industry need to focus on three things:  “increase airlift capacity out of Japan, assist investors in developing hotels by minimizing red tape, and follow the money.”  By ‘follow the money’ Kloppenburg means that Gov Guam should ensure that all those companies who profit from Guam’s tourism industry pay the government, and by extension -- the people of Guam who are the hosts – their fair share of the revenues made. 

One industry insider, who declined to be named, believes Guam was fortunate to have the Koreans pick up the slack from the Japanese weakness, “but in the long term Guam needs Japanese visitors to be successful.  The Japan market is orderly and consistent. The Korean market is volatile and inconsistent. Those of us who have been here for a long time can remember how we went from 200-thousand arrivals to 50-thousand arrivals in one year. Until such time as Korean money starts buying fixed assets, and we improve the Korean vacation experience, the Korean market will not be anchored in Guam. The wrong kind of emergency could damage the market,” the insider predicted.

This was echoed by another industry long-timer, “The decline in the Japanese market to Guam is not good for anyone. Japan has been the bedrock for Guam’s tourism for many years and we need to determine how to recover this market. We really need to spend the time and resources to look at what other destinations like Hawaii have done to maintain their market share in Japan.  I believe that the increase from the Korea tourism market and all other markets is good for Guam. This is what has somewhat buoyed the negative impact of the decline in the Japan market. The increase in the Korea visitor market has spurred investment in our tourism infrastructure out of Korea which will help add the capacity outlined in the Tourism 2020 Master plan. It is up to us to adapt to this market and maximize our returns.”

But can Guam’s Japanese market rebound? Schumann believes it can, “there is a need to identify specific market segments and target them if this is to happen.”  Schumann believes one such market segment is senior citizens.  He says 1 out of 4 Japanese are over the age of 65, making it one of the grayest countries in the world. “There are also opportunities in educational tourism as more and more Japanese companies are ‘internationalizing’ their workforce and sending employees overseas to learn English and interact with people from other countries,” he explained.

Said the industry insider, “I’m not convinced that we are seeing a complete shift, but clearly Korea is no longer a secondary market. We have two primary markets, Japan and Korea. The Korean market has been fueled by the advent of the LCC (low cost carrier) phenomenon. Japan has no lift from this segment of the airline industry. But if we are able to reach this group, then I would expect Japan arrivals to rebound. Japan visitors have a 40-plus percent return ratio. Korea is below 20-percent.”

Growth through Diversity

Schumann predicts ten years from now Guam’s tourism industry will become even more diverse, “Businesses need to learn how to adapt to welcome other markets if they have not yet done so. The Japan market is more mature and has different needs, ‘they’ve been there, done that.’ So they don’t do the group thing as much as we saw in the past, so many of them are free, independent travelers,” Schumann said.

Kloppenburg suggests that the government isn’t getting a full return on the current record arrivals Guam is producing, “In terms of sheer numbers we are in a boom period. The question we have to ask ourselves is why when we have such historic numbers are Gov Guam revenues not keeping pace?  Ergo, follow the money. Rooms of course are a problem but that has temporarily resolved itself with the Air-BnB business model. New hotels will be built but it’s a long process.”

Industry experts agree that a main limiting factor to more visitors is the number of hotels rooms and long-stay vacation rentals.  GVB President and CEO Nathan Denight has said that increasing the hotel inventory needs to be a priority in order to grow the current market and expand the new ones, “especially during the busy times, like for those charter flights as we try to grow china. That’s also a big challenge. But we’re working together with GEDA (Guam Economic Development Authority) to get more hotel rooms so we can ultimately hit our tourism 2020 goals of 1.75 million tourists,” Denight said. 

Despite the downtrend in Japanese visitors, the local industry remains extremely bullish.  They expect overall arrivals will continue to rise, and that occupancy and hotel rates can be expected to grow.  Said the industry long-timer, “I think it is always good to take a step back and reassess our tourism strategy and determine what makes sense given our current situation and make adjustments accordingly. I am not necessarily in favor of 2 million visitors for the sake of achieving that number because it sounds good. I have always had the opinion that it would be better to have 100 people spending $500-dollars than having 500 people spending $100-dollars. Maybe 2 million is the right number, but self assessment given our set of circumstances today is what is needed.”

But Schumann believes the most critical element to the success of the industry is continued positive public sentiment and support, “Although we cannot control all the factors determining the growth of the industry, this is one industry where the residents have a say about the direction of its growth. It will be a plus for Guam to continue to have more residents involved in the shaping of the industry.”  As one observer said, “the tourism demographic is up to us to shape. We need to decide what that would be.”

The Philippine potential

Diversification of the tourism industry has long been a goal of local government and tourism officials who understand that while Guam has reaped untold benefits from Japanese tourism, there is wisdom in not placing all one’s eggs in one basket.  Guam, like many others, has been eying the huge Chinese market.  Multiple administrations have pursued a potentially game-changing Guam visa waiver only to be rebuffed by Washington.

But could Guam’s leaders be looking too far west, and not seeing the forest for the trees?  While the vast potential of China’s outbound tourist market is hard to ignore, there is a next-door neighbor to Guam with strong historic and cultural ties, and a population about the same size as Japan’s, that is also much younger.

Airline and tourism industry executives in Manila say with more than 100-million people, a growing middle class, and affordable air travel, the potential is huge, “the middle class of Filipinos are growing. GDP growth of the Philippines as a whole is one of the highest in the region, second to China,” said Philippine Airlines (PAL) Vice President of Sales, Ryan T. Uy.

The President of the Philippine Travel Agencies Association (PTAA), Marlene Dado Jante agreed, “the market is no longer just the rich people, the wealthy people anymore. It’s really the middle class. You know Filipinos now really want to explore, and Guam has the potential to be visited by many Filipinos. Traveling now for Filipinos is no longer a luxury, it’s a way of life,” she said.

 Cebu Pacific Airlines (CEB) Vice President of Marketing and Distribution Candice Iyog said Guam has the right combination for Filipino travelers, “There is a lot of potential for the market because of proximity, because of affordability, and there’s so many Filipinos there. And you know how Filipinos like to travel right, they like to go where there are other Filipinos as well.”

Add to that a long-standing Filipino penchant for all things American. Owen Cammayo, Head of Corporate Communications for Resorts World Manila, which has been very successful in building a market of Guamanians going to their properties said conversely, Guam holds a strong attraction for his countrymen as well, “Filipinos have always had a strong affinity for western culture. Anything that’s “in” in the U.S., we want to follow, we want to have, right? So imagine, Guam is the perfect place to start that American dream. You get the best of both worlds, you still feel like you’re in the Philippines with the beaches and everything, but you get to experience the western world, you’ve got Macy’s, Ross, you know. Personally, I love Guam.”

 PTAA member Ritchie Tuano confirms, “The American influence on the Philippine culture is still very strong. There’s still that, I would say, ‘want’ for the average Filipino to be able to go to the U.S. and if they cannot go to the mainland because of the distance then Guam is there within three hours reach.”   His colleague Richie Tuano agrees, “the name Guam itself is already a walking advertisement. When you say Guam the impression is still ‘Guam is USA.  You know the tagline Guam uses, ‘where America’s day begins,’ it’s a very good tagline. I think it really works.”

PAL’s Uy describes it as a big feather in the cap, “It’s also prestige for a Filipino to have that arrival stamped, ‘I’ve been in the U.S.’” Cebu Pacific’s Iyog added, “It’s an easy trip to make. It’s just three hours and you’re already in the U.S. Then there’s always that American dream. Just to get out of the country and be able to say I went to the U.S. last weekend, you know.” 

The experts also agree that with all the many selling points it would then be a matter of just getting the word out.  Resorts World’s Cammayo adds, “if you want people from the Philippines to go to Guam then you got to build the Guam brand here in the Philippines similar to what we do in Guam. So we’re not just trying to sell our properties, but also the Philippines as a destination.”

“It’s a very nice place. I think people just need to know more about it,” Pal’s Uy said. 

RWM’s Cammayo added that building on long-held cultural ties and compassions will also be important, “supporting a cause close to the Filipinos would provide a major impact to the Filipino community. Outside of the fact that you guys are already an attractive destination … it’s just going to be additional motivation for the Philippines as a country to support Guam, if you support our causes here.”

Visa Waiver is Key

Philippine travel industry experts agree there is one big impediment that if removed would really open the floodgates for Filipino visitors, “If Guam authorities were to extend a visa waiver program for Filipinos you can definitely expect an influx of tourists. Not only from the Philippines per se but you can also look at the network of Philippine Airlines. We do serve some key Asian destinations. We have multiple flights from China, Japan, and of course the Southeast Asia region, that we can bring in and connect to Guam,” explained PAL’s Uy.

CEB’s Iyog said ease of travel is always a concern for Cebu Pacific’s customers, “When you’re considering where to travel --competing with other destinations -- the visa situation will make a difference.  It’s logical that if it’s so much easier to gain entry then more people are going to go. It will always come back to that.” 

Last year Guam welcomed a little over 21-thousand visitors from the Philippines. Travel experts say if visa restrictions were eased, that could easily double or triple.  PAL’s Uy cites examples, “the top three destinations from the Philippines do not require a visa: Hong Kong, Bangkok and Singapore.  If you are to remove a visa, you will see a lot of people going there. No question about it.”

The PTAA’s Tuano, who is a travel agency general manager, has witnessed the impact first-hand, “I was working with Cebu Pacific when they launched Tokyo. It was the time when Japan relaxed the visas. Year-over-year, Japan reported a 100-percent growth in Filipino tourists into the country.”

He continued, “As long as you document your financial records, and they’re in order, getting a visa is very easy. It’s a breeze. They give you three years, five years at the most.  Everyone goes back and forth. This year I’ve been to Japan three times already.  Even if we just get a 25-percent increase in Guam, that’s a very significant number.”

Visa Challenges and Solutions

CEB’s Iyog said they have asked Guam officials about the potential for a Guam-only visa waiver for the Philippines and she understands that local officials are considering the options, “I guess the question is, how important is it to Guam?” she asked.

  “It’s not easy to get a U.S. visa, and it’s also not cheap. I think that’s the biggest challenge. If I’m a Filipino who doesn’t have a visa, and if it costs the same, I might as well get a full visa,” Iyog said.

The PTAA’s Cerdena agrees, “If it is the same $160-dollars as a regular U.S. visa it might not be so attractive. I would rather go for a visa for the entire U.S. It doesn’t really make sense (for Filipino travelers) if the cost of a Guam-only visa is the same as the mainland.”

Cerdena explains another disadvantage, “When the LCC (low cost carrier) model was introduced to the Philippines, travelers were educated in terms of advance purchase (discounted fares). Because it’s hard-earned money they tend to do advance purchase to destinations that does not require visas, or destinations that they can easily obtain visas. Why? Because you don’t want to buy advance tickets and later cannot get a visa to enter the  country.”

There are an estimated 1-million plus Filipinos currently holding U.S. visas, or only about 1-percent of the population. The Philippine-based experts agree that it is still a difficult “pass” to get. Through the years Philippines was hampered by a relatively high visa rejection rate. There was also the long held notion that many Philippine citizens would over-stay their visas then disappear in the vast American countryside. The Filipino slang term for that is “TNT” or “Tago ng Tago,” which means to hide and hide.

But Philippine industry executives are skeptical that “TNT” is still a widespread practice.  They say economic conditions have improved enough that most Filipino travelers have more reason to return home than take their chances as an undocumented alien in the U.S.  Besides, they believe it’s not something that would apply here, “Guam is a small place, where can they hide in Guam?” PTAA’s Tuano remarked.

They recommend that Guam could lobby for options other than a full visa, “based on what I see with other countries, they do it on a trial basis, which I think is a more prudent approach.  Like the Republic of Korea, if you present to them a credit card statement with a certain bank they will consider that. So for example for Guam you could come up with a campaign with credit card holders of PNB (Philippine National Bank).  Because PNB they know they have the resources,” suggested PAL’s Uy.

PTAA’s Cerdena offered another alternative, “Let’s look at Korea. We still need visa for Korea, but if you were to go directly to Jeju island it’s not required,” he continued, “There’s also a visa for a restricted stay for 5-days only.” 

The Filipinos argue that the upside for Guam is too big not to try, “It’s really ideal for Guam if there were some relaxation of visas. Either a no visa policy, or a visa upon entry,” Cebu Pacific’s Iyog remarked. 

PAL’s Uy asks why not? He said it makes sense given the long-standing ties between his country and America, “If you look at the history and fundamentals of our geopolitical relationship, the Philippines has been an ally of the USA for the longest time. Filipinos are heavily affiliated with Americans. We love America. We were colonized by America. We think the risk of people going there and not coming back is very, very small. There will always be risk, but if you look at the location of Guam, it’s very far from the mainland, it’s surrounded by water, and it’s too small for people to easily do “hide and seek.”  Where can you hide in Guam, everybody knows everybody,” Uy said.

In fact, for Uy’s Philippine Airlines it would be especially fitting.  He explained that Guam was part of the Philippine Flag carrier’s very first transpacific flight to the U.S. mainland. On July 31, 1946 a chartered PAL flight carrying 40 American soldiers from the Philippines stopped in Guam before proceeding to Wake Island, Johnston atoll, Hawaii and finally Oakland.  

More than 70 years later, Philippine tourism might well be that proverbial girl next door, the one you always knew was there but overlooked. Like the lyrics to that song, “sometimes the very thing you’re looking for is the one thing you can’t see.”

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