Koror- Tourism arrivals in the tiny nation of Palau continue to drop dramatically, with forecasts signaling visitors for 2019 will fall under 100,000 for the first time since 2011.
Tourists at Palau's famous Rock Island. Photo by Kambes Kesolei
The latest economic review by the Graduate School USA, describes the situation as a ‘crisis’. It says declining arrivals are expected to continue through the fiscal year 2019, with an expected drop by 25 percent to less than 90,000.
The forecast is based on figures for the first 7 months of 2019 and is a stark contrast to the peak in visitor numbers in 2015 of 163, 905 arrivals.
Impact on the economy
Tourism is critical for Palau it is one of the major driving force of the economy but the tourism boom the country enjoys since 2010 has stagnated.
The US review said the drop in tourist numbers in 2019 would result in the drop in GDP and large contraction in the economy.
In FY2018 the economy grew by 1.7 percent despite the fall in visitors, the drop however, did not put an adverse dent into the economy, thanks to the government’s fiscal surplus from prior years.
The peak in visitor numbers in 2015 has been attributed to the large increase in package-tour visitors predominantly from Mainland China.
Improvement in occupancy rates in 2015 encouraged additional construction in hotel plant but due to the slump, occupancy rates fell to 39 percent in FY2018 with some establishments operating below cost.
To address the influx, the government in 2015 halved the charter flights coming from China citing that it does not have the resources or infrastructure to handle an influx of Chinese travelers.
But by the end of 2017, China banned state-run package tours to Palau, causing the numbers plummeting since then.
Palau recognizes Taiwan rather than China diplomatically. In an op-ed piece in May, President Tommy Remengesau Jr. said the “support has not come without a cost.”
He said the China policy “restricts travel by its citizens to countries like Palau” that recognize Taiwan, resulting in significant lost revenue from tourism.
The economic brief also noted, “with anticipated further reductions in visitors in FY2019 and plant operating at low levels of occupancy, it might be concluded the industry is in crisis.
” While the arrivals has been strongly associated with a contraction in the Chinese segment of the market, the numbers in arrivals of the more traditional, higher spending tourists- like Japan and Taiwan also fell.
Future can still be positive
The outlook for visitor numbers for Palau beyond 2019 is positive, according to the review, due to potential increases in scheduled flights to Palau. Economic reviews reminded the nation about creating “an excellent product” to attract visitors.
With occupancy rates returning to 50 percent, the average attained during FY2012-FY2016 period, visitor numbers would reach 165,000 in FY2024, the review stated.
It has been a roller coaster ride for the tourist industry. In FY2015, annual visitor arrivals grew by 34 percent to hit the peak of 163, 905 arrivals. In FY2016, the number dropped back to 146,643 and again fell back to 122,050 in FY2017 and 115,964 in FY2018. The review noted that while Palau has adopted a policy to attract high-value tourists, it has not implemented the policy.
“Tourist developments have been virtually unconstrained, and in an unregulated market, the economy has been subject to volatility and large swings in visitors.
” If the policy to attract high value tourists is not implemented, Palau “will have limited options to mitigate the vagaries of market forces and improve the likelihood of achieving its high-value tourism policy objectives.”