The Philippine tourism sector delivered its strongest first-five-month performance in five years, with foreign tourist arrivals reaching 2.74 million from January to May 2026, an 8% increase year-on-year from 2.54 million over the same period in 2025.

Growth was broad-based across both long-haul and short-haul source markets, meaning the distant and nearby countries visitors travel from, led by the United States, Japan, and Canada, and reinforced by a sharp rebound in Chinese arrivals.

Momentum, however, cooled sharply through the period, with growth easing from a February peak of 17% to just 1% by May. The lingering effects of the Iran crisis, rising inflation, and a weaker peso are expected to shape the sector's trajectory through the rest of the year.

Two things are true at once, then: the year opened stronger than any in the past five, and the pulse behind that number weakened with every passing month. Underneath the national headline sits a two-speed market, where foreign and business travel held firm while domestic budget travel came under pressure.

Strongest First Five-Month Arrivals in Five Years

The 2.74 million arrivals recorded in the first five months of 2026 mark the highest level for that period in five years, up from 2.56 million in 2024 and 2.54 million in 2025. It is also a full recovery from the 559,832 arrivals recorded over the same months in 2022, when travel restrictions were still in place. In the space of four years, the sector has gone from a fraction of its normal traffic to a new post-pandemic high.

The United States led all source markets with 531,859 arrivals, a 7% increase from 496,742 a year earlier, followed by South Korea, Japan, China, and Canada.

Chinese Market Rebounds as South Korea Extends Its Decline

Beneath the headline, the mix of where visitors came from shifted meaningfully. China posted the strongest gain among the top source markets, while South Korea, the country's second-largest source, continued to slide.

China's rebound stands out: arrivals rose 63% to 187,478 from 115,163 a year earlier, the sharpest gain among the leading markets. Japan increased 7% to 226,494 and Canada rose 17% to 166,247.

South Korea remained the primary drag, with arrivals declining 10% to 501,789 from 554,855. Because it is the second-largest source market, sustained losses there could pull down overall arrival growth even as other markets gain, which is why the report flags it as the number to watch on the downside.

Growth Momentum Slows Month-on-Month

Arrivals stayed in positive territory throughout the first five months, but the pace of growth decelerated markedly as the period went on.

That works out to an average monthly growth rate of 7%, but the average hides the trend that matters: the line fell in every month after February. The lingering effects of the Iran crisis, including traveler uncertainty and the ripple effects of flight cancellations at the height of the conflict, are expected to weigh on international arrival growth into the second half of 2026.

Metro Manila Room Rates and Occupancy Edge Higher

While arrivals cooled, Metro Manila accommodation held firm. The support came from corporate and MICE-driven demand, meaning business travel for meetings, incentives, conferences, and exhibitions, which stayed largely shielded from household inflationary pressure and the travel disruptions caused by the Iran crisis.

The average daily rate, meaning the average price paid per room each night, rose to PHP 6,000 from PHP 5,800 a year earlier, while average occupancy, the share of available rooms filled, increased to 66% from 65%. Monthly room rates climbed steadily, peaking at PHP 6,200 in April, and occupancy improved to 67% in May from 64% in January. The pattern points to a corporate and events segment that kept booking rooms even as leisure demand softened.

Inflation and Fuel Costs Weigh on Domestic Travel

The other side of the two-speed market is the domestic traveler. Inflation, projected at 6.4%, leaves Filipino travelers with less discretionary income for leisure trips, while elevated fuel costs keep airfares high and further discourage domestic travel.

The exposure is uneven, and the budget-to-mid-tier hotels that rely on local travelers are the most vulnerable, with little room to discount their way to occupancy given rising operating costs. The properties serving foreign and corporate guests can hold their rates; the ones serving domestic leisure travelers largely cannot.

Key Factors to Watch for the Rest of the Year

LPC has identified four factors that will shape the hotel and tourism industry through the remainder of 2026:

Inflation and fuel costs. Elevated inflation and airfares are expected to prompt a domestic pullback, with budget-to-mid-tier operators most affected.
A weaker peso. Peso depreciation makes the Philippines more affordable for foreign visitors, providing an inbound tailwind, although local operators still face higher costs on imported goods that squeeze margins. The currency, in other words, helps fill rooms with foreign guests while making it more expensive to run the hotel.
ASEAN meetings. The return of face-to-face ASEAN meetings is expected to lift arrivals modestly, with the benefit concentrated in hotels and destinations that have strong MICE capabilities.
Fuel prices. This is the wildcard for the year. Stabilization in the second half would ease pressure on airfares and support inbound recovery, while continued escalation could offset the gains from a weaker peso.

Market Outlook

The tourism sector enters the second half of 2026 on firmer footing than feared, with the energy crisis proving less severe than initial projections and international arrivals staying in positive territory. Even so, the steady month-on-month slowdown in growth warrants continued caution. Occupancy growth is expected to remain modest, driven by MICE activity and domestic tourism, while room rates continue to rise amid sustained demand and higher post-crisis operating costs.

The positioning follows the two-speed pattern seen all year. Properties with strong foreign-visitor exposure and MICE capacity are best placed to benefit from a weaker peso and the return of regional meetings, while those reliant on domestic budget travelers remain the most exposed to inflation and elevated airfares. The strength of any inbound rebound will ultimately hinge on the direction of global fuel prices through the balance of the year.

Industry Insight

"The first five months of 2026 delivered the strongest arrival performance in five years, with an 8% year-on-year increase. This reflects the resilience of Philippine tourism and its diversifying source base. The momentum from the first half gives us a comfortable lead over last year's overall performance, but we must remain prepared as the full effects of the global crisis have yet to be fully felt."
— Alfred Lay, Director of Hotels, Tourism, and Leisure, Leechiu Property Consultants

The Takeaway

The headline is genuinely strong: at 2.74 million arrivals and 8% year-on-year growth, the first five months of 2026 were the best start in five years, built on a broadening source base, a full recovery from the restricted-travel years, and a striking 63% rebound from China.

The caution is just as real: growth faded from 17% in February to 1% in May, South Korea kept sliding, and inflation and airfares are squeezing the domestic budget traveler even as Metro Manila's corporate and MICE hotels hold firm. The first half bought the sector a comfortable lead over last year, and whether it keeps that lead through the second half will come down largely to where global fuel prices go from here.

Stay ahead of the shifts shaping Philippine tourism and hospitality. Access the latest insights and download the full 1H 2026 Philippine Property Market Report at leechiu.com/market-insights.