Competition stiff in Yogya hotel business

By Sri Wahyuni

YOGYAKARTA (JP): The rupiah is declining, and the drought- related fires and haze are tarnishing Indonesia's image abroad so badly that countless prospective tourists canceled their trips here.

And still the hotel industry has to contend with another problem: increasingly stiffer competition in a relatively stagnant market.

In less than two months, this ancient city launched three new star-rated hotels, and is preparing to open another next month.

The five-star Sheraton Mustika was opened by President Soeharto on Sept. 15, the five-star Hyatt Regency by Minister of Tourism, Post and Telecommunications Joop Ave on Oct. 17, and four-star Novotel was opened last Friday. Each hotel offers 246, 269 and 201 rooms respectively.

The 150-room Ibis Malioboro Yogyakarta is preparing for its soft opening next month, bringing the total number of new star- rated hotel rooms on offer to nearly 900 for 1997 alone.

The city is really oversupplied with hotel rooms, some people believe.

"In all, there will be about 8,000 hotel rooms in Yogyakarta by the end of the year," said Toto Sudharto, general manager of four-star Santika Hotel Yogyakarta and also chairman of the Yogyakarta Tourism Industry Promotion Board.

Of the hotel rooms in Yogyakarta, 3,000 are in star-rated hotels.

"What's the prospect of the hotel business in Yogyakarta next year? One thing is for sure, there will be more supply than demand," Toto said. "That's even with annual 12-percent growth in the number of foreign tourists and 20 percent in domestic tourists."

Adi Sucipto Airport, which is the main entrance to Yogyakarta for foreign tourists, brings in between 1,000 and 1,200 tourists a day, or about one-third of available star-rated hotel rooms. Domestic tourists, on the other hand, usually opt for non-star hotels.

"The situation is pretty tough for us," said Toto, adding that the expected average occupancy rate here in coming years would drop to less than 50 percent.

Operational costs, which include employees' salaries and maintenance expenses, have to be covered by an occupancy rate of at least 30 percent, Toto said.

Santika claims to have an annual 60-percent occupancy rate for the past six years, the highest rate among Yogyakarta star-rated hotels. Santika won the 1997 Adhi Karya Nugraha Utama award for best performance.

And yet Santika sees the newly launched hotels as a threat to its business. "The higher-rated hotels are a threat, but so are the lower-rated hotels," Toto said.

He said Santika had been trying to cope by finding new markets, which he called "niche markets", outside traditional ones.

"These are the small but potential markets," he said, citing Asian countries like Malaysia, Singapore, Thailand, Korea, Hong Kong and China.

Traditional markets include those of European countries -- such as France, Germany, Britain and Austria -- and those of Japan and Taiwan.

Another way of coping is by maintaining present room rates despite the economic turmoil which has seen the rupiah drop by 35 percent against the U.S. dollar since July, according to Toto.

In a time like this, creativity is called for.

Novotel, a French hotel chain, is trying to attract guests, not only by offering discounts of up to 50 percent from its published rates during the opening earlier last month, but also offering executive facilities.

For example, it provides a play group called Geco Club, where guests can send their toddlers, and rooms for the disabled.

"We're the only hotel in Yogyakarta offering special rooms for the disabled," said Bambang Sanyoto, the director of sales and marketing at Notovel.

The struggle to woo tourists is on.

The province's Casa Grande, the association of hotel general managers, for example, launched this week a promotion package in cooperation with the Association of Indonesian Tour and Travel Agencies.

The program offers an early check-in (as early as 4 a.m.) and late check-out (as late as 4 p.m.) for those who reach Yogyakarta and leave for Jakarta by night trains.

Three five-star hotels (Hyatt Regency, Melia Purosani and Sheraton Mustika), five four-star hotels (Ambarrukmo Palace, Aquila Prambanan, Radisson Yogya Plaza, Santika and Novotel), and three three-star hotels (Phoenix Heritage, Ibis and Yogya International) are participating in the program which lasts until Dec. 15, 1997.

The program also offers rates of between Rp 258,500 (US$73) and Rp 300,000 for twin rooms, and between Rp 302,000 and Rp 402,500 for single rooms. Service charge, government tax, a welcome drink and complimentary breakfast for the first and second days are inclusive.

"We realize that our piece (of revenue) is limited, so we have to work side by side to make it bigger," Bambang Sanyoto said.

Discount

Another way to cope is to have a discount war between hotels.

"Some offer discounts of more than 60 percent despite there being an agreement between us not to give discounts of more than 50 percent of the published rate," a hotel manager said.

Economist Revrisond Baswir of Gadjah Mada University said a price war was inevitable in a situation where supply exceeded demand.

However, low occupancy rates usually forced hotel managements to increase prices in order to keep expenses down. Therefore, no matter how big a hotel was, a discount would certainly not exceed a hotel's overhead, which was presumably high already because of the low occupancy rate, he said.

"In the long run, the situation could endanger the entire tourism industry here as it would make Yogyakarta less attractive than other tourist resorts because of the relatively higher accommodation costs," he added.

Revrisond, who is also head of the Institute of Development and Economic Analysis, said the rapid growth of the hotel business in Yogyakarta was inseparable from the property business.

"It has a very strong relationship with the growth of bank loans allocated to the property sector, which has risen by more than 200 percent over the past few years," he said.

He said in such a situation, investors sometimes neglected the market, which was the most important factor. As a result, the hotel sector had the same potential as other sectors in causing bad debt, Revrisond said, referring to unsold property projects, including real estate and office buildings in big cities.

"It's sometimes hard to understand that in a time when the number of tourists is declining, people ... invest their money in the hotel business," he added.

Benny K. Setiawan, an executive of the Prima Suryagraha Perkasa (PSP) Group which owns Novotel Yogyakarta, said his company opened the hotel mainly to support the government policy in boosting tourism.

Novotel chose Yogyakarta because it was the second tourist destination after Bali, he said. Novotel Yogyakarta was the first PSP venture outside of Jakarta.

In return for that support, Benny hoped the government would help nurture the industry by establishing additional flights on state-owned airlines so that more passengers could be carried to Yogyakarta.

"So, a 'win-win' situation could be created," said Benny, who is also president director of Novotel Yogyakarta.