Competition stiff in Yogya hotel business

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.