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Special Market ReportIssue 101: Phu Quoc, Vietnam

November 2017

Special Market Report Issue 101 - Phu Quoc, Vietnam

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AboutLocated off Vietnam’s southern coast, Phu Quoc is the largest island in Vietnam. Part of Kien Giang province, Phu Quoc has an area of 574 square kilometres and an estimated population of 103,000 (2012 census).

The island is split into three metropolitan areas - Downtown Duong Dong, Northern Cua Can and Southern An Thoi. The island’s climate is distinctly characterized by rainy (June to November) and dry seasons (December to May).

The island is known for its production of fish sauce and black pepper. Tourism, in recent years, has played an important role in the economy. Dubbed as ’Pearl Island’, Phu Quoc’s beaches, unspoiled ecosystem and rich biodiversity are main attractions for tourists.

AccessibiltyBy airSince 2012, Phu Quoc has been served by Phu Quoc International Airport - Vietnam’s fifth largest airport. Phase one, completed in 2012, is able to host 2.6 million passengers per annum. Following a growth in the number of passengers in recent years, there are plans to expand the airport eventually to 7 million passengers per annum by 2030. Phase Two of the expansion plan, which will see an increased capacity to 4 million passengers per annum, is expected to be completed by end of 2017.

Airlines currently operating both domestic and international flights from Phu Quoc include Vietnam Airlines, Vietjet Air and Jetstar Pacific Airlines. Direct international flight connectivity to Phu Quoc is still very limited compared to other regional destinations.

International tourists often have to transit via Hanoi, Ho Chi Minh City or Cantho. International airlines tend to only charter direct flights during high season depending on demand. However, as the island plans to boost itself as a premier tourist destination, increased direct flight accessibility is expected in the near future. As of October 2017, Bangkok Airways is the latest airline to add a direct flight route between Phu Quoc and Bangkok.

By sea Another way to travel to Phu Quoc would be via fast boats. These boats depart from either Ha Tien (1h 10 mins) or Rach Gia (2h 30 mins) and run extra trips during peak season. However, seas can get rough between June and September.

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Tourism Boom

Visitor Arrivals to Phu Quoc

In the past three to four years, Phu Quoc’s tourism has finally started to gain momentum after years of talk. Visitors arrivals from 2012 to 2016 has seen a high CAAG rate of 47 percent, with YOY growth of 61 percent in total arrivals in 2016. Phu Quoc is still largely supported by a domestic market, however, with impending plans to improve the overall attractiveness of the island destination, the number of international visitors should increase over time.

International vs. Domestic Arrivals 2016

By the end of 2017, Phu Quoc is targeting over 1.8 million tourists, which includes 300,000 foreigners. To push ahead with this goal, the district has been rallying for increased international air connectivity as well as a greater awareness of the destination via promotional activities.

The following are reasons that accounted for the large increases in visitor arrivals:

• The Vietnamese now have an increased discretionary income compared to the past and thus can spend more on travel. In 2010, the mean disposable income per household was US$2,613. This has since grown to approximately US$3,822 by the end of 2016.

• Since 2013, all foreigners have been granted a 30-day visa exemption to Phu Quoc. The exemption resulted in a spike in international tourist arrivals, growing by 37 percent YOY in 2014 compared to a mere 1 percent the previous year. In 2015, there was again a drop in international arrivals mostly on the back of a lack of direct flights. As most foreigners still have to transit via Ho Chi Minh city where a visa is required, Phu Quoc’s visa-exemption policy is still limited. In 2016, international arrivals rebounded, possibly due to the opening up of more chartered direct flights to Phu Quoc.

• In 2016, the government lifted a ban which disallows locals from gambling at casinos. As Phu Quoc is expected to house a number of casinos in the near future, domestic interest has shown no signs of slowing.

• Investment to improve overall infrastructure of the island has increased overall attractiveness of the island.

• In the past, locals had to absorb costly power prices or rely on diesel generators. In 2014, a submarine power cable system was completed, where electricity can now be transferred to the island via mainland Ha Tien. The more efficient and lower cost of electricity has greatly benefitted both hotels and local villages.

• Due to continued economic development and an increase in passengers, the current Phu Quoc International Airport was constructed and completed in 2012 to replace Duong Dong Airport. Phu Quoc International Airport, when fully completed, is expected to hold a capacity of 7 million passengers per annum.




Hotel Market Presently, the majority of the hotels in Phu Quoc are small and locally branded. However, with booming tourism and government support, big brand names are starting to come into the market – the most recent big brand name being the JW Marriot Phu Quoc, designed by Bill Bensley.

Other international brands already on the island include Novotel Phu Quoc, Mgallery by Sofitel, Sol Beach by Melia and Vingroup’s large development – Vinpearl 1 to 3 – north of the island.

New SupplyBy 2021, Phu Quoc is expected to have over 8,000 keys of hotels and condotels. The bulk of new supply is expected to come online in 2018, with an anticipated growth of about 340 percent YoY.

A notable developer would be Vingroup’s four-star hotels north of the island; the group alone would contribute a new supply about 1,440 keys. Another major hotel developer in Vietnam, Sun Group, is expected to contribute more keys with the opening of the Sun Premier Village Kem Beach Resort in the south. Towards the mid-term, supply growth is expected to taper off. It should however be noted that projects often get delayed for various reasons.




Key DevelopmentsWith an increase in visitor arrivals comes an increase in both public and private investment. As of September 2017, about 265 projects are underway or set to be operational on the island. Notable developments are as follows:

• Phase 2 Airport Expansion (VND3 trillion): Plans include the enlargement of the apron area to increase the number of landing positions, construction of new roller tracks and expanding the passenger terminal area to hold a capacity of 4 million passengers per annum.

• North-South Axis Road (VND2.5 trillion): This approximately 51-kilometre road was completed in 2015 and connects Bai Thaom and An Thoi. The wider motor lanes have led to improved island accessibility.

• 100-km Island Road (>VND3 trillion): The 100-kilometer road is expected to encircle the island of Phu Quoc, providing even greater road accessibility across the island. To date, the project is approximately 70 percent complete.

• Phu Quoc International Passenger Port (VND1.6 trillion): This port is expected to be the first international standard passenger port in Vietnam. Built in Duong Dong township, when completed, the port is expected to berth vessels carrying 5,000 to 6,000 passengers.

Masterplan 2030 By 2020, the island is expected to become a Special Economic Zone (SEZ). This would enable individuals who earn taxable income to enjoy exemptions from personal income taxes for five years (but not beyond 2030) and a 50 percent reduction in subsequent years.

Foreign investment projects that qualify would also enjoy corporate income tax exemptions for an additional two years and a 50 percent reduction for four years compared to other projects.

Additionally, under the masterplan 2030, Phu Quoc is expected to undergo massive transformation to become a premier island destination. The following chart shows planned land uses for the island.

Highlights of the masterplan include:• Cable car line from An Thoi to Hon Thom island,

which will be the world’s longest aerial ropeway cable car.• Agricultural land in Vung Bau to be transformed into

a resort and sports area. The area is also expected to host four to five-star resorts.

• Bai Dai beach area to be used for tourism, golf courses, casinos, water sports centers and craft villages.

• Cua Can area to be used for high-end eco-tourism, sightseeing, water sports and crafts.

• Dong Cay Sao to be zoned for mixed-use tourism, entertainment and golf courses.




Can Phu Quoc fulfill its potential?

With so much buzz surrounding future developments, the ability of Phu Quoc to be transformed into a premier island destination does not seem like a distant dream anymore.

However, in order to succeed, continued committed public and private investments are essential. Additionally, there needs to be a fine balance between sustainability and development to maintain the long-term natural attractiveness of the island.

Strengths / Opportunities• Relatively untouched natural beauty throughout

the island• Classified by UNESCO as a World Biosphere Reserve,

lending weight to its natural advantages• Improved infrastructure since 2012• Government determination to propel the island into

a tourism center of regional and international stature • Increasing private investments and expected quality

of hotels and resorts in the mid- to long-term

Weaknesses / Threats• Poor sewage treatment systems; about 300 tonnes

of waste are discharged daily, half of which is not collected through proper means

• Rapid development could lead to displacement of local villages and a lost in their livelihood

• If not properly managed, large developments could damage the natural beauty of the environment

• Currently, international flight connectivity to the island is still poor


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AUTHOR:

GEORGIENNE LEE Consultant Horwath HTL [email protected]

Georgienne Lee is a consultant at Horwath HTL Singapore. Prior to consulting, she had experiences with hotel operations and business development in the Four Seasons and the Ascott Limited respectively.

At Horwath HTL, Georgienne has been involved in various feasibility and tourism planning projects spanning across Southeast Asia and the Indian Ocean.

HORWATH HTLHorwath HTL is the world’s largest hospitality consulting brand with 45 offices across the world providing expert local knowledge. Since 1915 we have been providing impartial, specialist advice to our clients and are recognized as the founders of the Uniform System of Accounts which subsequently has become the industry standard for hospitality accounting.

Horwath HTL is the global leader in hospitality consulting. We are the industry choice; a global brand providing quality solutions for hotel, tourism & leisure projects.

We focus one hundred percent on hotels, tourism and leisure consulting, and globally have successfully completed over 16,000 projects.

With over two hundred professionals and membership of a top ten accounting network, we are the number one choice for companies and financial institutions looking to invest and develop in the industry.

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