April 7, 2026 — Leechiu Property Consultants (LPC) presented a cautious outlook for the Philippine tourism sector during its first-quarter market briefing, “Navigating Uncertain Times,” with Alfred Lay, Director for Hotels, Tourism & Leisure, citing intensifying pressures from geopolitical tensions and rising energy costs—just as the industry was beginning to recover.
Echoing earlier discussions on uncertainty, Lay noted that while tourism had shown early signs of stabilization, the recovery “engine” is now “spluttering,” with more challenging months ahead.
EARLY GAINS DISRUPTED
Revisiting projections from the previous quarter, Lay shared that international arrivals appeared to have bottomed out earlier this year, with expectations of a gradual upcycle.
“In the first two months of the year, international arrivals were up by approximately 3% year-on-year,” he said. “While not headline-grabbing, it marked a welcome improvement following periods of stagnation.”
March was also expected to sustain this momentum—until escalating tensions linked to the US–Iran conflict escalation 2026 significantly altered the outlook.
Long-haul markets posted strong growth, approaching double-digit increases, but this also heightened the Philippines’ exposure to rising fuel costs.
Foreign arrivals for January–February 2026 reached 1.32 million, up 3.09% year-on-year. Long-haul markets grew 9.7%, led by the United States, Canada, Australia, the United Kingdom, and France. Short-haul markets expanded at a more moderate 3.4%, with Taiwan and Japan posting gains, while South Korea and China remained key drags—though a China rebound is anticipated by the third quarter, supported by e-visa expansion.
HOTEL SECTOR FACES MOUNTING PRESSURE
LPC data shows hotel performance remained largely flat between 2024 and 2025 across major destinations, with Cebu as a notable area of decline.
The market has since softened further, with both occupancy and average daily rates (ADR) under pressure.
Metro Manila occupancy stood at 65%, while Cebu City and Mactan dropped to 54%. ADRs increased modestly overall—with the national average at PHP 5,963 and Metro Manila at PHP 5,988—but Cebu weakened to PHP 5,586.
Lay attributed this to softer arrivals from China and South Korea, increased room supply, and intensifying competition.
The situation has been further compounded by the cancellation of around 650 in-person Association of Southeast Asian Nations (ASEAN) meetings—many of which were slated for Cebu—due to rising fuel costs and geopolitical uncertainty.
ENERGY CRISIS RESHAPES TRAVEL BEHAVIOR
Drawing parallels with pandemic-era trends, Lay highlighted how rising energy prices are reshaping traveler behavior—from trip planning to on-ground spending.
Safety, security, and cost have re-emerged as primary decision drivers.
Approximately 75% of European travel to Asia relies on Middle Eastern carriers. However, with travelers avoiding the region, airfare costs have surged, with alternative routes nearly doubling in price—significantly dampening demand.
Booking patterns are also reverting to last-minute decisions, reflecting continued uncertainty.
RISING COSTS ACROSS THE VALUE CHAIN
Jet fuel prices have doubled in recent weeks, prompting airlines to introduce or increase fuel surcharges. Domestically, transport costs—including ferries, vans, and inter-island travel—have risen by 20–30%.
“These increases affect not only access to destinations but also spending behavior at the property level,” Lay said. “Guests are likely to spend less on-site, placing additional pressure on hotel revenues.”
INDUSTRY IMPACT ALREADY EVIDENT
A recent LPC survey conducted with the Philippine Hotel Owners Association across 40 major hotel groups revealed that 64% reported significant to severe operational impact from the energy crisis.
Many properties began feeling the effects as early as March, with some operators reporting occupancy declines of up to 50%.
While April performance remains relatively stable due to prior bookings, Lay warned of a sharper slowdown starting May, with weak forward bookings across segments.
All key segments are expected to weaken in the coming months—MICE and corporate travel due to regional cancellations, international leisure already showing signs of decline, and domestic travel unlikely to fully offset losses as it did during the pandemic recovery.
Hotels are expected to respond with aggressive promotions, with room rates projected to decline by 10% to 30% over the next three to four months.
REVISED 2026 FORECAST
LPC has revised its tourism outlook just 60 days after its initial forecast, outlining three possible scenarios.
Even under the most optimistic case—where geopolitical tensions ease and energy prices stabilize—the Department of Tourism targets for international arrivals are now seen as unattainable.
A best-case scenario would see hotels achieving around 55% occupancy, sufficient to break even. However, this is becoming increasingly unlikely.
More realistically, the industry faces sustained elevated costs, declining room rates, and a 10% to 20% shortfall in international arrivals—bringing figures closer to pandemic-era levels.
CALL FOR LEADERSHIP
Lay underscored the need for decisive leadership to steer the industry through the crisis.
“It is an unfortunate time for the industry to be without a tourism secretary,” he said. “We need immediate direction and experienced leadership. With only two years left in the current administration, there is no time to lose in moving tourism forward.”
