U.S. military providing cushion to Palau’s tourism

U.S. Military in Palau

With efforts underway to boost its tourism-dependent market, Palau’s economy is seeing a glimmer of hope after emerging from more than two years of the Covid-19 pandemic.

Last year, Palau visitor arrivals more than doubled, but it was more of a mirage given that there was nowhere to go but up. The industry was just scraping from the bottom of the bucket. In 2022, Palau received 12,328 visitors as borders reopened and travel resumed worldwide. The number was far below the 93,723 visitors from the pre-Covid year 2019.

Hotel rooms were not booked with regular tourists but rather skewed toward service personnel who filled the gap as the U.S. military expanded its activities on the island in recent years. Nearly half of last year’s visitors were U.S. military personnel, providing a thin cushion to the local tourism sector.

The government of Palau has lobbied the U.S. Department of Defence to officially designate the Pacific nation as a rest-and-recreation destination for armed forces personnel, a segment of the market that the visitor industry hopes to attract. Former President Tommy Remengesau Jr was the first to request the R&R destination for the military during his term.

In December, the U.S. Military Morale Welfare and Recreation Center reached out to Palau’s business community to discuss opportunities to participate in military tourism. A team from the Joint Region Marianas’ Warfighter and Family Readiness Program met with local businesses interested in providing services and travel packages for U.S. service members.

“This was made possible through a request from President Whipps to Rear Admiral Ben Nicholson (commander of the Joint Region Marianas) on how Palau can benefit from the military personnel in the region and those visiting or stationed in Palau,” said Ngirai Tmetuchl, minister of Human Resources, Culture, Tourism and Development.

But all this started a couple of years back when Remengesau invited the U.S. military to build “joint use facilities” such as constructing port facilities, building airfields, and hosting more troops. 

However, military tourism is a small slice of an industry that makes up 40 percent of Palau’s economy. Just the same, it is significant for a full recovery. Travelers from Palau’s major source market are still elusive even though Japan, Taiwan, and Korea have lifted most travel restrictions.

If anything holds the cure for the return of tourism to its heyday, it will be the China market, which includes those from the mainland, Hong Kong and Macao. In 2019, while continuing its downward trend for the fifth year, the China market still topped the list with 30,020 visitors or 32 percent market share. Japan and Taiwan followed with 21 percent and 16 percent, respectively. Korea with 13 percent and U.S./Canada with 8 percent rounded up the top five source countries. 

A return of mainland Chinese tourists for Palau’s popular snorkeling and rock island tour may not be easy as Chinese tour groups were reportedly advised not to issue packages for Palau as punishment for Palau’s continued strong stance on Taiwan, which is claimed by the Chinese Communist Party as a renegade province.

The Taiwan market is roaring back with China Airlines’ twice-a-week flights fully booked. Taiwan’s premier carrier so far has been a booming success since its service resumed in November, but whether that can be sustained after the Chinese New Year is yet to be seen.

While United Airlines with flights from Guam and Manila carries 55 percent of inbound passengers, China Airlines is close behind with 45 percent. 

Industry stakeholders hope that Air Niugini, which started its service to Koror last month, will provide an economic jolt as Palau diversifies its tourist market. The service is being underwritten by the Australian government’s flight program that connects Brisbane to Palau via Port Moresby, Papua New Guinea. It is still too early to tell if demand is there for the air connection.

Speaking to the media last month, Tmetuchl said arrivals have been good based on the first two flights despite Air Niugini’s non-existent customer base for the new route. But efforts are being focused on Australian travelers, he said.

“We are trying to work with the government of Papua New Guinea and Australia to push more advertisements for the Australian market,” Tmetuchl said.

Competing estimates indicate a better tourism year since the onset of the global pandemic. Despite the expected increase in visitor arrivals this year, the projection is still far below pre-Covid levels. Conservative estimates for tourist arrivals in 2023 range from 15,000 to 20,000 visitors, according to Tmetuchl. 

He disclosed that a more robust estimate puts the number over 32,000, based on a 50 percent seat occupancy with the three airlines –United, China Airlines and Air Niugini – operating regularly.

But a more optimistic projection from the 2022 Graduate School USA economic report forecasts 41,000 visitors for the fiscal year 2023, with full recovery to pre-pandemic numbers in fiscal 2025.

This year’s official January arrival data of 1,989 visitors coupled with the anecdotal reports for February and March from local tourism officials show that Palau is on track to outperform the conservative estimates for 2023.

In February, IHG Hotels & Resorts signed a management agreement with Palau Coral Club to open a new hotel on Malakal Island. The proposed Hotel Indigo Palau is targeted for opening either in late 2024 or early 2025,  “This will be IHG’s first property in Palau, and its third in Micronesia. It also follows on from the recent signing of Hotel Indigo Tokyo Shibuya with PPIH, which will open in 2023,” said Abhijay Sandilya, IHG’s managing director.