Ailing hotel industry may recover after poll: Analysts

JAKARTA (JP): The Bali hotel market's current trend to recovery is not reflected in other Indonesian hotel markets, analysts have said.

"The hotel industry in Jakarta will probably bottom up and start to improve after the June election, but it will take between three and four years for those in provincial cities," said David Horovits of Jones Lang LaSalle Hotels, a hotel and tourism property services firm.

The Bali market had shown signs of recovery since the middle of last year, overtaking Jakarta to become Indonesia's leading gateway for international arrivals in 1998, he said on Thursday.

The hotel industry revival in Bali was measured by room night demand, a level that had substantially recovered since last July, albeit still below 1997 levels, he said.

The estimated length of stay of international visitors remained stable at about 6.7 days, though there was a marginal decline of 3.6 percent in the number of direct arrivals to the island to 1.2 million last year, he said.

The drop in Southeast Asian visitors to Bali in 1998 was offset by solid growth of key source markets from other regions, such as the U.S., Europe and Taiwan, which increased by 33.6 percent, 9.3 percent and 9.1 percent respectively, he said.

Japanese visitor numbers shrunk by 10.6 percent last year, with the country losing its position as Bali's traditional largest single source market to Australia, from where arrivals rose by 14.8 percent, he said.

Horovits said almost 99 percent of hotel properties in Indonesia were suffering from negative equity, as their total liabilities far exceed their value due to the sales slump.

Hotel occupancy rates had plunged to only 30 percent, from around 60 percent before the economic crisis hit the country, he said.

Despite the negative equity, the Indonesian hotel industry could still run because inadequate insolvency and legal frameworks here enable hotel owners to continue without fear of being pursued by creditors in bankruptcy courts, he said.

He said all Asian markets had been affected by the regional economic downturn, but few successfully fought back and emerged ahead of others in terms of improved operating performance and investor confidence.

In comparison to other Southeast Asian countries, the crisis in Indonesia continued because of continuing political uncertainty, the collapse of the banking industry, massive contraction in the economy and ethnic and religious conflicts in provincial areas.

With the backing of the International Monetary Fund and the international community, the government responded by embarking on a path to political and economic reform.

One of the most important measures is the forthcoming general election to be held in June. The election, normally held once every five years, has been moved forward to help restore political stability and is considered to be the critical factor influencing the future of Indonesia's tourism and hotel industry.

Horovits believed that political stability would follow the general election, paving the way for recovery in the country's tourism sector.

In early 1998, a large number of investment firms reportedly established representative offices in Asia with the purpose of identifying and acquiring distressed assets that could be bought at rock-bottom prices.

However, due to poor market conditions, only eight major hotels in Asia, totaling 3,200 rooms, were sold, representing a tiny 0.2 percent of the total inventory, according to Djodi.

"In comparison, a total of 745 hotels with total rooms of 217,500 were traded in the United States, while 30 transactions were concluded in the United Kingdom totaling 5,600 rooms."

The firm's newly published hotel and tourism property digest predicted Asia would see some hotel markets recovering in late 1999.

Seoul, Bangkok and Phuket, which have enjoyed positive growth in international visitor arrivals in 1998, would enjoy hotel market growth over other key markets in the region. (cst)