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Indonesia, the new Asian power

While the archipelago was able to reach the sixteenth place in the ranking of economic world powers, the tourism industry is not totally foreign to it. The growth of the sector is being confirmed from one year to the next and offers fine growth perspectives for the future. The growing interest of international players in the destination is proof. Victim of the archipelago’s success among international tourists, the Indonesian hotel market is currently experiencing an imbalance between soaring demand and room supply. This ought to satisfy the appetites of Future investors.

With more than 17,000 islands and some 235 million inhabitants, Indonesia is not only the biggest archipelago in the world, it is also the most populated. It is even the leading economy in Southeast Asia, and enjoys a wide variety of natural resources, including oil resources, a fast growing tourism industry, and a dynamic domestic market, driven by a growing middle class. All these played a key role in the growth of the GDP that has been taking place for several years, at an average rate of 6% per year. It reached 868 billion dollars in 2013, the world’s16th highest GDP. In light of the growth of Indonesian economic indicators, a recent report from the International Comparison Program, in connection with World Bank, even pushes the country into tenth place among world economic powers, just after France and Great Britain and before Italy and Mexico. The archipelago climbed five rungs in the ranking in six years. Beyond its flourishing economy, Indonesia still must face many challenges, particularly in terms of poor distribution of the country’s wealth, the high level of unemployment and the lack of infrastructures.

Tourist arrivals beat records

Tourism appears to be one of the primary growth levers for the Indonesian economy and plays an important role for employment in the country. The sector is all the stronger since its growth has been gaining momentum for several years, driven by the international appeal of its destinations, such as Bali, Jakarta and Batam. The destination has, in fact, reached new record levels in terms of occupancy in 2013, welcoming some 8.8 million international tourists throughout the year, or 9% more than in 2012. Revenues in the sector have followed the same evolution curve and increased by 10% over the previous year, with close to 10 billion dollars in tourist spending. The industry appears to be continuing to grow in 2014, with some 4.5 million international visitors coming to the archipelago in the first half of the year, or 9.5% more than on the same period in 2013. These results have been reached despite natural catastrophes (flooding and volcanic eruptions) that battered the Indonesian islands in February.

Bali plays an important leading role for tourism throughout the country as it is the most popular island for foreign travelers. In the first six months of the year it welcomed close to 1.72 million foreign tourists, or 15.7% more than in the first semester of 2013. The primary source markets for the island are nearby destinations such as Australia (representing 25.8% of tourists), China (15.3%), Malaysia (6.3%) and Japan (5.4%). These results build the local government’s the confidence in the future, and it plans to receive a total of 3 million international tourists on the whole of the year 2014.
On a national scale, the Indonesian Ministry of Tourism and Creative Economics is in the same mindset with a goal to reach 9.5 million international tourists in 2014. It foresees a new increase in number of arrivals with respect to 2013’s figures by between 6% and 8%. This forecast offers further evidence of growth for Indonesia’s tourism industry, as arrivals in the destination in 2007 only reached 5.51 million international tourists.

Several factors explain the strong growth of tourism in Indonesia in recent years. Initially, improved accessibility at the destination greatly contributed to the increase in number of arrivals from abroad. Whereas several airports have opened, such as in Lombok, airline capacities in terms of number of seats have been increased to the destination, especially for flights from the two high-potential source markets of the Middle East and China, with the former also being a key transit hub. New routes have also been opened to major cities in the archipelago as well as to secondary destinations. In addition to the development of airline transportation, tourism in the country has been boosted by the organization of several major international events, such as the Java Jazz Festival and Indonesia Fashion Week in Jakarta. Finally, the improvement of infrastructures dedicated to the sector must be considered in the equation, as these made it possible meet growing demand. Recent transformations of the hotelscape in the archipelago attest to this.

 A changing hotel market

According to figures from the national statistical authority, the Indonesian hotel market consisted of 16,685 hotels and 430,763 rooms in 2013, versus 15,998 hotels for 405,778 rooms in 2012. Growth in the national supply on this period thus confirms the growth trend observed for several years. The number of rooms in the country grew by more than 28% since 2009, when it had only 334,817 rooms at 13,932 hotels. International hotel actors are showing increasing interest and classified hotels seem to play a role in the growth of Indonesia’s supply. With some 171,432 rooms and 1,240 hotels in 2013, it has grown by 44% since 2009, whereas the unclassified hotel industry posts an 20% increase in its number of rooms on the period (259,361 rooms in 2013 versus 216,101 in 2009).

Growth of Indonesia’s hotel capacity should not slow in the years to come, while market demand continues to exceed the supply. The growing number of tourists accommodated each year in the infrastructures of the archipelago and the increased airline capacity to the destination, particularly as far as low-cost transportation is concerned, should make it possible for Indonesia’s hotel industry to continue to grow until 2020, and beyond. These generally heartening perspectives are not without any impact on investors, domestic and international alike. Thus, the majority of the 602.6 million dollars injected into tourism in the archipelago in 2013 benefited the development of its hotel supply. In all, 462.5 million dollars were invested by foreign investment funds. According to the Indonesian Minister of Tourism and Creative Economics, Mari Elka Pangestu, several local and foreign hotel operators are trying to expand their presence at the destination in order to keep up with the increase in demand. This is clear in recent announcements of pipelines by international groups.

Louvre Hotels Group is to be one of these actors. At the beginning of this year, one year after opening its first Golden Tulip hotel in the archipelago, the group announced its goal to open 30 more properties on the market in just three years. The group plans to add 1,286 rooms to its national network by strengthening the presence of its Golden Tulip brand and developing Première Classe at the destination. The city of Bandung should, moreover, welcome one of the budget brand’s biggest properties worldwide in 2016. “We are delighted to be revealing our plans today for Golden Tulip and Première Classe brands in Indonesia. The strong economy and solid long-term outlook will fuel greater business opportunities and travel in the country will become greater. The increase of access through fast developing airline infrastructure means the movement of people for business and leisure has never been greater and in this we see a great opportunity to establish partnerships to manage high quality hotels throughout the country,” declared Pierre-Frédéric Roulot, CEO Louvre Hotels Group, when the announcement was made.

Accor, meanwhile, is celebrating 20 years in Indonesia, and aims to grow its network to more than 100 hotels and 20,000 rooms on the market by 2015. According to Sébastien Bazin, CEO of the hotel group,  “Indonesia is a priority market for Accor in the Asia-Pacific region where there is significant potential for hotel expansion in the future and where we are already leader. The dynamic expansion in this country illustrates our global expansion strategy, with a secured pipeline of more than 130,000 rooms with two-thirds in emerging countries and on all market segments.” In 2013, the group opened 18 new hotels in the country on upscale to economy segments. It thus ended the year with a portfolio of 70 properties in 24 cities of the archipelago, and contracts signed for 70 more properties. Across the year 2014, Accor plans to open 17 properties in the cities of Jakarta, Surabaya, Bali, Makassar, Tangerang, Bandung and Semarang. It inaugurated its first luxury hotel at the destination, the Sofitel Bali Nusa Dua and recently launched in Indonesia its Grand Mercure Maha Cipta brand, with the Grand Mercure Jakarta Harmoni.

InterContinental Hotel Group is another international actor for which the Indonesian market is a priority. While it has a pipeline of 20 properties for 5,000 rooms, the hotel group recently announced the launch of its lifestyle brand Hotel Indigo in the archipelago, with the opening of the Hotel Indigo Bali Seminyak scheduled for 2015. The British group also plans to expand with three Holiday Inn hotels and nine Holiday Inn Express hotels at the destination by 2016, a second Hotel Indigo in Jakarta and a fifth hotel in the InterContinental Hotels & Resorts chain.

Carlson Rezidor is on its way to enter the market, as it partnerships with a local player to create a joint venture named PT Carlson Panorama Hospitality. The announced goal is to develop the brands Radisson and Park Inn by Radisson on the market, through the construction of some 20 properties in the years to come by destinations such as Jakarta, Bali, Surabaya and Yogyakarta, or in emerging cities such as Manado, Makassar, Palembang and Medan.

Among the other global operators present in Indonesia, Starwood Hotels & Resorts has a portfolio of 14 operating properties and 10 under development on the market, and has recently announced the implantation of its brand Four Points by Sheraton with the Four Points by Sheraton Makassar. Best Western plans to add 25 new properties to its Indonesian network in the years to come, representing some 3,500 rooms, versus the 600 that currently make up the network. The group recently opened the Best Western Mega Kuningan, its second address in Jakarta. Finally, Meliá Hotels International announced the signature of an agreement to develop the first hotel bearing the Innside by Meliá brand in Asia. Located in the Indonesian town Yogyakarta, the Innside Yogyakarta hotel should open its doors in 2015.

While international hotel groups are busy making up for the shortage of rooms in the Indonesian market, growing demand suggests that fine investment opportunities lie ahead. In light of the strong increase in arrivals at the destination, pushed by the reinforcement of transportation and tourism infrastructures, international investors and operators should keep a careful eye on this market for a while longer. The development of tourism is all the more important for Indonesia since it generates employment and revenues, while poverty and an imbalanced distribution of wealth continue to affect a large share of the population.

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