Lying 62 miles off Vietnam’s southern coast and known for pristine beaches and verdant forests is the island of Phu Quoc. Now seeing a major increase in attention from both tourists and hospitality investors alike, this increasingly attractive destination, however, still faces obstacles as it looks to develop.
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Phu Quoc Sees Rapid Tourism Growth
Talked about as an up-and-coming tourist destination for the past decade, very little development had actually materialised until the last couple of years. After significant government investment in local infrastructure, including a new airport, and a strong promotion campaign, tourist numbers have since exploded, and with them, serious private investment in resort facilities has followed.
“Over the past 24 months, a safari, theme park, hospital and golf course opened and an international standard casino is under planning”, explains Peter Ryder, CEO of Indochina Capital, a leading Vietnam-based real estate developer and advisor. He adds that, “During the early stages of a resort destination’s development, infrastructure growth is critical and the Phu Quoc authorities are demonstrating an ability to progress rapidly.” He explains that these early achievements from the government have instilled confidence in developers and international hotel brands — such as JW Marriot, InterContinental, AccorHotels, Sheraton and Ritz Carlton — to move forward with new projects.
While attracting only 25,000 visitors back in the year 2000, the number of tourists coming to Phu Quoc jumped to over 1.5 million in 2015, with local Vietnamese visitors doubling between 2014 and 2015 to reach 1.35 million. 2016 is expected to be another impressive year for Phu Quoc as Kien Giang Province, where Phu Quoc is located, is the major focus of the Vietnamese government’s Visit Vietnam Year 2016 tourism promotion campaign. By 2020, the government hopes on attracting three million visitors per year.
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Attracting Foreign Interest
Despite this, foreign tourists currently constitute only a relatively small percentage of overall tourist numbers, with just 164,000 foreign tourists visiting Phu Quoc last year out of a total of 1.5 million. Tourists from Russia, Singapore, Malaysia and Thailand are those currently showing the most interest in travelling to Phu Quoc — although the destination is increasingly welcoming tourists from Europe.
Ryder informs us that the government plans to increase the percentage of international travelers to 40% of total arrivals by 2020, explaining that, “Along with the rapid infrastructure development and expected completion of 5-star resorts, I expect the biggest change will be the increase of foreign travelers, specifically from within Asia as access improves regionally”.
Flights from foreign countries directly to Phu Quoc Airport have been on the increase lately. Swedish airline TUI Nordic says it expects to run weekly flights to Phu Quoc by the end of 2016 and China Southern Airlines started direct flights to Phu Quoc from Guangzhou in January this year. Direct flights by Vietnam Airlines are run from both Singapore and Cambodia.
Recent visa liberalisation for many nationalities has further encouraged arrivals to Vietnam by foreign tourists. In addition to this, as Phu Quoc is considered a special economic zone, the government has allowed visa-free travel to Phu Quoc for up to 30 days for all nationalities.
Image credit: PhuQuocIslandGuide.com
Economic Growth Boosting Vietnamese Travel
The rise in the number of domestic Vietnamese tourists heading to Phu Quoc can be seen in the context of strong and continued economic growth that has been lifting many Vietnamese into the middle classes and providing them with a greater disposable income to spend on leisure activities such as travel. This aspirational middle class are seeing travel as an important part of their new lifestyle.
While domestic travel is increasing in Vietnam, it is international travel by Vietnamese nationals to neighbouring countries in Southeast Asia — as well as further afield to destinations such as Japan, South Korea, the US and Europe — that is growing at a much more rapid rate. As incomes in Vietnam grow, the first industry to benefit is the local tourism sector, followed along by those in neighbouring countries and then, finally, those further afield. Six million Vietnamese traveled abroad last year, spending roughly US$6 billion. That’s almost double the US$3.5 billion that was spent abroad back in 2012.
Challenges to the Travel Industry
The domestic Vietnamese tourist industry, on the other hand, faces several challenges, including the need to improve service quality, create greater variety in travel activities and ensure improved value for money. Places like Japan and South Korea, meanwhile, have drastically relaxed their visa procedures for Vietnamese nationals, and tours to Japan that used to cost around VND40 million back in 2013, now cost between VND20 million (US$891) and VND30 million (US$1,347). Nearly 120,000 Vietnamese tourists visited Japan in 2014, an almost 50% year-on-year increase.
Phu Quoc also faces its own specific challenges. Labour is foremost amongst them. The recent rapid growth means that the local labour supply with adequate skills and experience in travel and tourism is incredibly limited, and hotel and travel operators need to pay a premium to attract skilled personnel to move to Phu Quoc to fill positions. In addition, finding local accommodation for hotel workers is becoming a struggle.
While infrastructure on Phu Quoc has greatly improved of late, especially with the new airport and roads, further development is still needed in terms of electricity as well as sewage and water treatment. Yet, Ryder remains confident, “Currently, the infrastructure and logistics are insufficient; however, within the next two to three years, with the key infrastructure initiatives either under construction or being planned, the island will be well suited to provide a high level of service to guests.” He adds that, “In terms of areas for improvement, the airport needs to be expanded to handle more international flights” however, “The government recognises this need and has plans to commence construction of a new terminal in 2016.”
Managing Future Growth in Phu Quoc
A final major challenge for Phu Quoc as a destination is one that has been faced by a number of other tourist destinations in the past — how will it manage its image as it grows and changes?
Earlier tourists came to Phu Quoc mainly due to it being perceived as a new and “off the beaten track” destination — attracted by its natural beauty and lack of development. As Phu Quoc grows, however, these existing tourists could be put off by the continuing development and may venture on to newer, untouched destinations.
Contrasting this, Nguyễn Vĩnh Trân, CEO of MIK Group, a leading Vietnamese real estate advisory with a number of hotel projects in Phu Quoc, including the soon-to-open Movenpick and Crowne Plaza resorts, explains that, “The Vietnamese government has, in fact, been rather proactive in terms of ensuring the preservation of the forest on Phu Quoc, as well as restraining over-development and being strict on wastewater treatment”. He adds that many developers have also learned from their experiences in other locations and are now much more aware of the importance of preserving the natural beauty of the island.
With Phu Quoc currently transitioning into a more mass-market destination, it is important the authorities and private sector take the time right now, before development continues too far, to carefully consider what image Phu Quoc wishes to present to the world and how it can differentiate itself from other mass-market destinations.
Investments in infrastructure are not the only investments that are needed. The local and national tourism authorities, along with the major resort developers and operators, should carefully consider Phu Quoc’s assets and unique selling points, determine which types of tourists are likely to be most interested in visiting Phu Quoc and understand what they are looking for in resort destinations. Having a clear understanding of this will ensure that the development strategy for Phu Quoc continues along a path that will lead to the greatest success.
QUO wishes to express its thanks to Olivier Do Ngoc, Managing Partner, Dynasty Investments, Peter R. Ryder, CEO, Indochina Capital Corporation, Nguyễn Vĩnh Trân, CEO of MIK Group and Marriott International for invaluable support and insights on the development of Phu Quoc.