HOTEL OPERATORS in the Philippines are facing pressure from rising costs and weakening demand as the ongoing energy crisis drives up airfares, disrupts flights, and dampens hotel demand, according to Leechiu Property Consultants (LPC).
In its first-quarter market report, LPC said “64% of hotels report significant to severe operational impact from the energy crisis.”
LPC Director of Hotels, Tourism, and Leisure Alfred Lay said the industry is entering a more difficult period as cost pressures intensify.
“Philippine hotels are entering their most challenging period since the pandemic. Occupancy is expected to fall sharply in April and May as the fuel crisis drives up airfares, dampens traveler confidence, and squeezes household budgets,” he said in a statement.
Early 2026 tourism data showed modest growth, although underlying demand remains uneven. Foreign tourist arrivals reached 1.32 million in January and February, up 3.09% from a year earlier, according to LPC.
Long-haul markets expanded 9.7%, led by the United States, Canada, Australia, the United Kingdom, and France. Short-haul markets grew at a slower 3.4%, with gains from Taiwan and Japan partly offset by declines in South Korea and China. LPC said a recovery in Chinese arrivals is expected by the third quarter, supported by the expansion of e-visas.
However, rising costs are beginning to alter travel behavior. The report said tourists are expected to take fewer trips, shorten their stays, and shift to cheaper and shorter routes, while booking patterns are reverting to pandemic-era practices.
Occupancy levels showed limited improvement last year. “Hotel occupancy in 2025 remained at 60%, flat year on year, and still below the 68% recorded in 2019,” LPC said.
Performance across destinations remained uneven. “Cebu/Mactan held ADR (average daily rate) but struggled to fill rooms, with occupancy sliding to 54%,” the report said.
Industry conditions have become more challenging in early 2026 as higher fuel costs drive up travel expenses and weigh on demand.
“Jet fuel costs doubled within three weeks, leading to airfare increases of 25% to 50% for long-haul routes, and destination transport costs rising by 20% to 30%,” LPC said.
Hotels are already seeing the effects on bookings, with declines in occupancy already underway or expected in the coming months.
LPC noted that “80% of hotels already feeling occupancy declines.”
The meetings, incentives, conferences, and exhibitions (MICE) segment is also under pressure, which may further affect hotel revenues.
It said that “650 in-person ASEAN meetings are expected to be canceled, dampening room and event revenues.”
Mr. Lay said the outlook remains uncertain as both international and domestic demand face pressure.
“With international arrivals under threat and domestic spending softening, the industry is bracing for a difficult second half of the year, and the outlook beyond that depends entirely on how quickly the Hormuz crisis resolves,” he added.
In response, hotel operators are adjusting strategies to manage revenues and costs.
LPC said that “30% of hotels are offering value-added packages instead of direct discounting, while 28% are choosing to hold rates and absorb the occupancy drop.”
The report also noted that some operators are reducing rates to defend occupancy.
The outlook for the sector remains uncertain and depends on how long external pressures persist.
“In a prolonged conflict scenario, national occupancy could drop below 45%, potentially making a majority of hotels loss-making in 2026,” LPC said.
Under a more moderate scenario, national occupancy is expected to fall between 45% and 50%, while a favorable outcome could see occupancy recover to 50% to 55%, the report said.
Domestic tourism is expected to provide some support as international travel becomes more expensive.
“Domestic tourism remains the backbone of the industry,” it said.
Uncertainty is also affecting investment and expansion plans in the sector. Rising construction costs and weaker demand visibility are prompting developers to reassess projects.
“Many hotel construction projects are being shelved, delayed, or renegotiated due to surging costs and uncertain demand,” LPC said. LPC said a return to more normal conditions may be possible by the fourth quarter under a favorable scenario. — Arjay L. Balinbin
