Indonesian hotel industry slumps as crisis continues

By Devi M. Asmarani

JAKARTA (JP): Over three decades of rapid economic growth had fostered Indonesia's hotel industry, but recent economic and political blows are now threatening high-flying investment in star-rated hotels.

Posh hotels, especially those built more recently, have found themselves head over heels in debt since the rupiah sank in value by 80 percent against the U.S. dollar, while their market shares are getting ever smaller.

For star-rated hotels who normally charge in dollars, one of the biggest challenges currently facing them is how to attract guests amid increasingly tight competition.

The Chairman of the Indonesian Hotels and Restaurants Associations (PHRI), Pontjo Sutowo, said that competition ha become so tight that hotels had been forced to reduce their prices by about 80 percent.

Though most still charge their guests in dollars, many hotels have slashed room rates and use an exchange rates lower than the prevailing market rate, which was around Rp 11,000 against the U.S. dollar last week. Some hotels have set their exchange rate at as low as 5,000 per U.S. dollar.

"In dollar terms, prices are about one-fifth (of their pre- crisis level)," Pontjo told The Jakarta Post during an interview last week.

A lower number of tourists arrivals is a major contributory factor to the industry's cash flow problems. The downturn in tourism began last year following a series of natural disasters and a plane crash and peaked in the aftermath of the May riots this year.

Though tourism has improved since then, uncertainty over the political situation here has made many foreigners hesitant about visiting the country.

Despite this, the supply of hotel rooms has continued to grow, even when other sectors of the economy such as property and manufacturing have gone into virtual hibernation.

"In the last five years, the supply of rooms grew by 10,000 each year," Pontjo, who owns the Jakarta Hilton International hotel, said.

Investment in a hotel usually takes 4 years from the planning to the operational phase, he said.

There are currently 220,000 rooms available in the country and this number is likely to grow in double digits for the next couple of years because of the number of on-going projects, he said.

Last June alone -- not even one month after deadly unrest hit the country -- two major international hotel chains, the Kempinski Hotel Plaza and the Hotel Menara Peninsular, opened up in Jakarta.

Kempinski currently operates 250 rooms out of 376 rooms, while Peninsular operates 205 out of a total off 400.

Other hotels which started operation in Jakarta in the first half of this year include the Santika Jakarta (281 rooms), Parkroyal Bulevar (300 rooms) and Banian Bulevar (132 rooms).

Property consultancy firm PT Procon Indah has said that a 150- room extension to Le Meridien Hotel and the 333-room Mega Kuningan Marriott are expected to open in November.

Excessive investment

Pontjo admits that hotel developments have been too excessive in the past.

"We made a mistake in the past, tourism developments concentrated too heavily on the hotel industry and paid very little to tourist attractions," he said.

"People thought that tourism meant building hotels," he added.

But Pontjo said that investments in hotels were more commercially attractive than investments in tourist attractions.

"People can calculate the return on a hotel, but they can't do that for the Prambanan temple, for example," he said, adding that development of tourist attractions should be the government's responsibility.

But not all the blame can be passed off on the government.

Hotels grew in number in response to heartening yearly growth in the number of tourists arrivals. In 1996, tourist arrivals grew by 16.4 percent to 5.03 million, with total spending of $6.3 billion.

This year, the government has forecast that arrivals will drop by 10 percent on last year's figure to 4.6 million people.

"Our people can be latah," Pontjo said, citing an Indonesian term for people who follow a fad in massive numbers.

Now hoteliers are under fire. Their businesses are going downhill and they must react to protect their investments.

They cannot rely on the government to save tourism from being destroyed by the current political and social turmoil in the country -- the Ministry of Tourism, Arts and Culture has said that it has no budget to support tourism this year.

PHRI, restaurateurs and the operators of tours and tourist attractions have united to organize the Let's Go Indonesia campaign, which consists of public relations work and marketing gimmicks.

Ninety-one percent of the investments in tourism were in the hotel sector but we only receive 30 percent to 50 percent of the income," Pontjo said.

Hotels have tried to restructure their financial affairs through cutting costs and renegotiating debts.

But at the end of the day, Pontjo said, revenues were unlikely to cover the debts repayments that are falling due.

"With normal occupancy rates like last year, we were already down, and now the occupancy rates have dropped even further," he said.

Asked if many owners were likely to sell their hotels to other investors, Pontjo said any such moves might lead to difficulties in determining the value of hotels put onto the market.

"If the investment value of a room was $200,000 then the hotel would charge guests $200 for the room. Now, after the hotel has lowered the room rate to $40, investors would only bid $40,000 per room," Pontjo explained.

However banks would not allow hotels to be sold for such low values and would instead convert the debts into equity instead, he added.