The Philippines has set some lofty goals to reestablish itself as a key tourist destination in Asia, aiming to boost the 7.1 million foreign tourists last year to 12 million by 2022. Most of these tourists, and tens of millions of domestic travelers, will presumably book hotel rooms and flights.
The beneficiaries of all this activity, and those who stand to gain the most, will most likely be just a handful of families who for generations have held a tight grip — some say 70 percent — of the tourism business in the Philippines.
With so much control concentrated in the hands of so few, it raises questions, not least the longstanding one on a disproportionate distribution of tourism income between the haves and the have-nots. With the rich becoming a lot richer, the smaller players, individuals, and communities enjoy merely the crumbs even if they toil as hard as, or harder than, the industry titans.
And what about the dangers of pricing cartels and other collusions, as one imagines can easily happen given so much control in so few hands? Or the possibility of land grabs by powerful moguls for tourism or related developments — how much say would a villager have against the lofty visions of such supremos?
These families, most of whom descended from Chinese and Basque immigrants, own many of the local air carriers and hotels in the Philippines. They were among the first “tourists” in the country, who eventually stayed.
Those tourism ventures are an offshoot of their main concerns. Three of the families — the Sys of the SM Group, the Tans of Megaworld, and the Zobels of the Ayala Group — have long been in the property and mall business before branching out to building hotels.
Only the families of taipans Lucio Tan Sr. and John Gokongwei made the mind-boggling forays into the highly competitive aviation business, with little or no background in the industry, after having dominated the food, beverage, and alcohol markets for decades. The Gokongweis have since expanded to the hospitality industry as well.
Faced with allegations of Marcos cronyism and of underpaying taxes, the beer and tobacco magnate-turned-banker silently financed the acquisition of Philippine Airlines (PAL) s through PR Holdings, led by Antonio “Tonyboy” O. Cojuangco, cousin of then-president Corazon Aquino.
Cojuangco participated in the privatization program of the Aquino administration, setting up PR Holdings and buying the s from the government, which then owned PAL, using Lucio Tan’s money. They later had a falling out, pushing Tan to take over PAL, Asia’s oldest airline, in 1995.
Despite massive losses, a restive labor union, the airline’s brief closure, higher aviation fuel costs, and increasing competition from a liberalized aviation industry, Tan — dubbed “Kapitan” (captain in Filipino) by his peers and employees — has held on to PAL, keeping the airline’s fleet young with a succession of re-fleeting programs.
To explain the tycoon’s obsession with PAL, the airline’s former president Jaime J. Bautista said it well in 2010. Responding to a question from a radio interviewer why there were so many businessmen investing in airlines, despite financially challenging operations, he said: “The airline industry is a sexy industry, and those who invest in it are billionaires. Who invested in Virgin Air? Richard Branson, a billionaire. So it’s like saying the airlines are like toys for the big boys, because it’s glamorous to own an airline, but a number of them are unprofitable.”
With a fleet of 98 planes, PAL currently flies to 43 international and 35 domestic destinations. Keen observers of the airline industry are anxiously waiting for the next moves of PAL’s new president and chief operating officer Gilbert Santa Maria, a veteran of the business-process outsourcing industry, to turn around the airline.
With mounting competition locally from domestic rivals, and abroad where more efficient legacy carriers and nimble budget airlines reign supreme, PAL may be hard-pressed to extend its route network without joining any major airline alliance. The first order of business for Santa Maria is to further trim PAL’s losses and undertake more impactful marketing strategies to shift the business from rivals.
According to Lance Y. Gokongwei, CEO of Cebu Pacific Air (CEB), his father, John Gokongwei, founder of the parent firm JG Summit Holdings, “became interested in commercial aviation after reading about Southwest Airlines and, seeing an opportunity, he decided to challenge the monopoly.”
The Gokongwei family bid for PAL when the first Aquino administration tried to privatize it, but was edged out by Lucio Tan. With the deregulation of the airline industry in 1995, JG Summit set out on its own, with many of its earlier officers and staff at CEB coming from PAL.
“When we started Cebu Pacific in 1996, we had four McDonnell Douglas DC-9-30 aircraft plying daily between Manila and Cebu; later we added flights between Manila and Davao.
“Since then we have grown exponentially with our proposition of low fares and very accessible flights for people from all walks of life. Cebu Pacific was really born from the passion to create a carrier which alters not just how and when people travel, but has a ripple effect across the broader tourism industry,” Gokongwei told Skift.
Volatile fuel prices and a weak Philippine currency was a real challenge to the airline in the past year with income nosing down by 50 percent to $75 million. “But we have managed to remain resilient,” he stressed. Another hurdle is higher expectations of passengers,“[as] we have enabled more people to fly.”
“We have to strike that balance between keeping our operations efficient and improving customer experience. Lastly, aviation infrastructure ne to meet growing demand. We are confident that as investments are made in infrastructure, we will be able to meet growing demand for travel over the near term,” he said.
Today, CEB is the largest airline in volume of domestic passengers flown. Last year, it flew 13.5 million domestic passengers, accounting for over half of the 27.82 million domestic passengers flown in 2018.
By the end of this year, the company will have a total of 23 hotels with the addition of Dusit Thani Mactan Cebu Resort, Summit Hotel Naga, Summit Hotel Greenhills, and Go Hotels Tuguegarao.
“These new hotel properties will result in a 23 percent rise in the number of rooms to 3,371. In 2020, we plan to add 12 percent more room keys to end at 3,770 rooms with the opening of Summit Hotels General Santos and our fourth international branded hotel, Westin Hotel in Ortigas Center.
“Moreover, our Go Hotels brand has five franchised hotels with 963 rooms,” said Gokongwei in a report to holders.
The Zobel family is widely known as a mall developer. Ayala Malls, which began in the business district of Makati remains one of the most popular commercial establishments in many parts of the country.
Ayala Land, which handles the group’s hospitality business, has 600 rooms under international brands Holiday Inn and Fairmont and Raffles Makati, and 1,863 rooms under its homegrown Seda Hotels across the country.
It also owns El Nido Resorts (Miniloc, Apulit, Lagen, Pangalusian, El Nido Cove, and Lio Estate) in Palawan, frequently cited by international travel publications as among the best islands in the world. As well, it partners with the family who owns Sicogon Island in Iloilo, south of Manila, to develop a number of resort properties.
“International arrivals grew from 3.9 million in 2013 to a record 7.1 million in 2018, but what is notable is the number of domestic tourists which, from 44 million in 2013 more than doubled to 97 million in 2018. This is a clear manifestation of a robust local economy driven by consumption and a growing middle-class. For as long as these factors are in place, we can expect sustained growth in our tourism sector.”
He added, “Ayala Land is strategically positioned to take advantage of the evolving tourism sector. We see tourism as an integral component in our country’s development and we are taking steps to ensure that we grow our hotels and resorts portfolio in a responsible and sustainable manner.
“We now have a growing portfolio composed of branded hotels, our very own Seda hotel brand, and various bed and breakfast formats located in our urban, suburban, and tourism estates across the Philippines”
Ayala Land currently has 3,490 rooms to cater to international and local travelers, he said.
The company hopes to be a model of sustainable tourism with its Palawan resorts taking the lead. “From our point of view, we have moved into substantial tracts of land and are looking for more in the hope that we can create several sustainable tourism environments,” said Ayala Group’s president Fernando Zobel in a speech last year before the Management Association of the Philippines.
“In all our tourism developments, we want to make sure that the employment benefits to the local communities are maximized, environmental impact is properly managed, and that these destinations can serve as a showcase for the rest of the world on how tourism’s potentials can and should be harnessed.”
The SM Group is one of the Philippines’ largest conglomerates that had its beginnings as a shoe store in downtown Manila set up in 1958 by the late taipan Henry Sy Sr. It is now one of the most highly regarded companies globally by Forbes magazine.
SM began its tourism investment in 1998, acquiring the Taal Vista Hotel, a heritage property along the ridge of a dead volcano which opened in 1939. The Sy family patriarch, like many Filipinos, was a frequent visitor to the property, which offers a cool weather getaway due to its high elevation.
SM eventually spun off its tourism concern as a separate unit, setting up SM Hotels and Conventions (SMHC) in early 2009, as inbound tourists surged from 2004 to 2007. By then, it had also been operating the Beach and Country Club of Pico de Loro at the SM-owned Hamilo Coast in Nasugbu, an area known for beaches south of Manila.
In an interview, SMHC executive vice president Peggy Angeles noted the increasing number of arrivals “may benefit from diverse accommodation choices. Most importantly, putting up hotels beside existing SM malls and capitalizing on their strategic and iconic locations further elevate and complete our guests’ leisure experience.”
The company has partnered with Radisson Hotel Group for several of its hotels in key destinations in the country such as Cebu, Davao, Clark, Iloilo and North a in Metro Manila. Its luxury hotel in its Mall of Asia complex in Pasay, Metro Manila, is a Conrad.
Angeles said one of the challenges the company has had to face is the growing number of local and international competitors. “Other developers likewise see the potential of the thriving hospitality business. From a larger scale though, this reality prompts the company to remain vigilant, innovative and relevant.”
It has also been difficult to recruit skilled workforce, which is mainly due to “the robust [call center] industry where many have been employed because of attractive initial salaries. We are likewise losing great talent to overseas, given that Filipinos’ hospitality, natural customer service attitude and English proficiency are in high demand.”
Yet the company aims to double its portfolio throughout the country in the next five years, she said.
SMHC’s portfolio today comprises six hotels with a combined inventory of over 1,700 rooms and over 38,000-square-meter leasable convention space. It is scheduled to open a Park Inn by Radisson Hotel in Bacolod in the third quarter of 2020, and the very first Lanson Place Hotel and Serviced Suites in the Philippines in 2022.
Real estate mogul Andrew Tan (no relation to Lucio Tan) made his first foray into the hospitality business in 2000 with the opening of homegrown brand Richmond Hotel in the Ortigas business district, under his corporation, Megaworld.
It saw the potential of significantly growing its tourism business by setting up casino resort Resorts World Manila in 2008 in one of its township developments, Newport City, located in Pasay, Metro Manila.
Soon it partnered with international hotels brands such as Holiday Inn, Marriott and Sheraton, and will be launching the Hotel Okura and an “ultra-luxurious” Ritz-Carlton hotel in Newport City, said Tan’s son, Kevin Tan, CEO and vice chairman of Alliance Global Group.
The foreign hotel brands including Resorts World Manila fall under the Travellers International Hotel Group, a joint venture between Alliance Global and Genting Hong Kong.
The highly competitive gaming environment, however, has forced Travellers International to apply for delisting in the Philippine Stock Exchange by October 15. Resorts World Manila’s income was cut in half in the second quarter of the year, its poor financials have been a drag on its parent in the last quarters.
Alliance Global, the parent of Megaworld, remains undeterred, however. “For decades, the Philippines has continued to be a ‘tourism powerhouse’ with the tourism sector being one of our country’s strongest performing industries. We firmly believe that tourism is a strong jump-off point for foreign investments, which is why we at Alliance Global Group have put a significant effort in growing our tourism-related investments,” the younger Tan said in a recent speech.
With more than 6,000 hotel rooms in its portfolio, the company is targeting to open more than 6,000 additional rooms in the coming years. “This will enable us to have about 12,000 hotel rooms by 2021, which we are aiming to achieve in support of the government’s thrust to reach 10 million tourist arrivals target by that same year,” he said.
The company will be opening more homegrown brands in its township projects such as the Grand Westside Hotel and Kingsford Hotel at Westside City in Parañaque; The Upper East Hotel in Bacolod; Chancellor Hotel and Belmont Hotel at Boracay Newcoast; Belmont Hotel Iloilo at Iloilo Business Park; and Savoy Hotel Mactan at The Mactan Newtown.
San Miguel’s chief Ramon S. Ang already owns two hotels in his personal capacity — Diamond Hotel and Makati Diamond Residences — managed by his eldest daughter. He has expressed interest in expanding the portfolio by opening hotels in Baguio, Batanes, Boracay and Caticlan, the latter where San Miguel manages an airport.