Indonesian hotel industry slumps as crisis continues

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.