Indonesian tourism ready and waiting for business

By Tantri Yuliandini

JAKARTA (JP): People tend to look back at the 1990s as the golden years of Indonesian tourism.

And no wonder -- with tourist arrivals steadily growing at an average rate of 16 percent and bringing in as much as US$6.3 billion in 1996, tourism then was certainly a gold mine for prospecting foreign exchange.

In terms of revenue, tourism moved from Indonesia's 12th largest industry to fifth, and was originally targeted to be the country's third largest industry between 1997 and 2002.

Then catastrophe struck.

As Indonesia was sucked into the morass of the Asian economic crisis, the tourist industry was inevitably pulled down along with it.

An industry vulnerable to change, tourism plunged into its darkest hour when the country was ravaged by political upheavals, riots and an atrophic economy.

Although not quite hitting the bottom, it recorded growth of only 2.99 percent in 1997 (5.2 million visitors) and sank to minus 11.16 percent in 1998 (4.6 million visitors).

More resilient than other industries, perhaps, it swung back in 1999 to record growth of 2.63 percent, with 4.72 million tourist arrivals and $4.71 billion in foreign exchange.

Hopes ran high in 2000, the year of the Golden Dragon, considered the most auspicious year for business by the Chinese.

As is often the case, however, the reality is that not all that glitters is gold.

Incessant fighting in Maluku and Aceh, along with bomb blasts in several parts of Jakarta, have held back a resurgence in tourist arrivals in the country.

The first nine months of the year only saw 3.7 million visitors, and it is unlikely that arrivals will reach the 5.1 million targeted at the beginning of the year.

Even the minister of culture and tourism was pessimistic about reaching the target.

In his report to the coordinating minister for the economy in October, I Gede Ardika said it was almost impossible for the 2000 target to be achieved.

It would take 381,624 visitors a month for the tourist industry to be able to meet the target, he said, adding that it would mean an increase of at least 9 percent in each of the remaining months.

"The fact that average growth during the first eight months only reached about 4 percent (means) there is very little chance the year 2000 target can be reached," Ardika said in his report.

On top of that, the anti-American sweep of hotels in Surakarta, Central Java, in late October effectively quashed the slim hopes of more arrivals.

The U.S. government subsequently slapped a travel warning on Indonesia, and in the weeks after some 800 tourists from the United States and Europe canceled their trips to the country.

Chairwoman of the Association of Indonesian Tour and Travel Agencies (ASITA) Meity Robot said the number of foreign tourists to Surakarta, which is also known as Solo, dropped significantly following the sweep.

At least two American charter flights and two cruise ships carrying about 1,600 passengers canceled their plans to disembark in Central Java, she said.

"There were more but I can't remember them all," Meity added.

"The chief of ASITA's executive board in Solo informed me that there were many hotel rooms empty in the city, and that many tourists had canceled their tour plans."

The travel warning issued by the U.S. government also influenced European tourists intending to visit Indonesia.

Chairman of the Indonesian Hotel and Restaurant Association (PHRI) Pontjo Sutowo said a travel warning would inevitably affect tourist arrivals to the country.

He said in some countries, a travel warning was treated as law, banning the country's citizens from traveling to the nation in question.

"In Japan for example, if someone sells tourism products of a country against which a travel warning was issued, that person would be considered to have broken the law."

He said even though the United States only issued a warning, and not a ban, its effects would be far-reaching unless it was quickly revoked.

The success of the Tourism Indonesia Mart and Expo (TIME) in September had, for a time, buoyed confidence that the year-end target would be achieved.

The event secured about $9.5 million worth of contracts, an increase from last year's $8.7 million.

"But as soon as the event ended, there was the Jakarta Stock Exchange bomb blast," Meity said.

Hotels

As with the number of tourists, hotel businesses are also facing stagnant growth this year.

According to PricewaterhouseCoopers in its third quarter issue of Jakarta Property Trends, the occupancy rates of hotels in Jakarta reached approximately 38 percent for five-star hotels, 46 percent for four-star hotels and 62 percent for three-star hotels.

It is a brighter picture than the second quarter figures of 32 percent, 41 percent and 56 percent respectively, and the record lows of 26 percent, 27 percent, and 37 percent during the second quarter of 1999.

But it is a far cry from the precrisis levels, when all three star levels recorded occupancy rates of more than 60 percent.

Overall, the occupancy rate of hotels in 13 provinces between January and July averaged 43.41 percent, according to data from the Ministry of Culture and Tourism.

The provinces are North Sumatra, West Sumatra, Jakarta, West Java, Central Java, Yogyakarta, East Java, Bali, North Sulawesi, South Sulawesi, East Kalimantan, Riau and West Nusa Tenggara.

On the island of the gods, Bali, however, tourism sings a different tune.

If occupancy rates of hotels could be used to measure the success of tourism in a region, Bali, with its rate averaging more than 60 percent, has seemingly escaped the wrath of the crisis.

"Bali's image (as a tourist destination) had been established a long time ago, and tourism has merged with Bali's way of life," Pontjo explained.

In fact, the development of tourism in Bali is nothing short of remarkable.

Making its debut as an international tourist destination in the 1920s, the number of Bali's foreign visitors grew from 10,997 in 1968 to 155,597 in 1993, and soared to 1.14 million in 1996.

While the rest of the country suffered from a dearth of tourist arrivals during the crisis, the island recorded 1.35 million tourists coming directly from foreign ports in 1999.

Pontjo said another reason for Bali's survival was that during the heat of the crisis it tended to disassociate itself from the rest of Indonesia. It was a case of Bali standing alone, not Bali, Indonesia.

At international travel marts, Bali would have a separate exhibition booth from the Indonesian contingent.

"For a long time Bali was not known to be a part of Indonesia, so it is easy for it to disassociate itself," he said.

Pontjo, who is also the chairman of the Indonesian Tourism Promotion Board (BPPI), takes a sober view of the situation of the hotel business.

"All in all, 2000 was better than 1999, but compared to 1996, our peak year, we are still 25 percent behind," he said.

Development in the hotel sector came to a virtual halt as the crisis intensified.

In 1997 there was a total of 18,100 hotel rooms in three to five-star hotels in Jakarta. During the three years of the crisis, 2,300 additional rooms were built, compared to about 1,200 rooms built in 1991, 1,500 rooms in 1976 and 1,900 rooms in 1974.

The credit crunch ensured suspension of construction of more than 5,000 rooms from the 6,500 previously planned, according to PricewaterhouseCoopers.

"In view of the quantity of speculative overbuilding which had been planned in the hotel sector, the sudden stop to development might be seen in some ways as fortuitous for the hoteliers," it said.

"They nevertheless had to suffer the effects of the business downturn which shattered occupancy and room rates."

In the past, hotels quoted room rates in U.S. dollars which, because of the rupiah depreciation, meant a 60 percent to 175 percent increase in equivalent rupiah rates, further decreasing affordability and guest numbers, the company said.

"Hoteliers were forced to lower their room rates in dollar terms," Pontjo said.

Five-star hotels reduced their average room rates by 34 percent to $74 from $120 between 1997 and 1999. Most three-star and four-star hotels now quote room rates in rupiah, effectively seeing a reduction of around 60 percent from 1997 to 1999.

"Average room rates had fallen to an equivalent US dollar rate of $34 and $20 for four-star and three-star hotels, respectively, by mid-1999," PricewaterhouseCoopers said in its report.

Many hotel operators tried to attract guests by offering hotel memberships which would allow discounted hotel facilities. Special weekend packages for local residents, and business and seminar packages were also put on the platter, it said.

Even with lower prices and special packages, customers were not attracted because there were other external factors that made them unsalable, Pontjo said.

"Hoteliers are now operating below breakeven point, and if this goes on for any longer the industry would collapse," he said.

Conventions

Since the tourist industry is not bringing in much revenue for hotels, especially in Jakarta, an increasing number of hoteliers are casting a hopeful eye at the meetings, incentives, conventions and exhibitions (MICE) industry this year.

Although the business is still not particularly attractive to foreigners, hotels did fairly well in providing space for meetings and conventions, while the exhibition segment was pretty much taken by the Hilton with its Jakarta Convention Center located close to the business district.

Marketing vice president of hotel operator PT Hotel Indonesia Natour Tjuk Sumarsono said income from conventions and meetings contributed about 40 percent of the earnings of hotels under his supervision this year.

Hotel Indonesia Natour manages 16 hotels in Java and Bali, including Hotel Indonesia, Indonesia's oldest international standard hotel.

"For now meetings and conventions are still dominated by government and local business clients," Tjuk said, adding that in the future his hotel chain would continue to focus on MICE.

Chairman of the Indonesian Congress and Convention Association (INCCA) Iqbal Abdullah said the potential in generating revenue from MICE was staggering.

"The income from MICE could reach as much as five times the income from conventional tourism," he said.

Those attending MICE events usually stay for at least five days and spend about $500 a day compared to only $100 a day from conventional tourists, Iqbal said, adding that at least 500 participants could be expected at an event.

Despite the great potential, the MICE industry has not flourished as expected in Indonesia.

This was partly due to a shortage of professional convention organizers (PCOs), Iqbal said.

In the entire country, there are only 34 companies catering to the MICE industry, he said.

It's a classic case of the chicken and the egg.

The industry does not flourish because of the lack of professionals, and the lack of professionals in the field is caused by a lack of demand for the events.

In 1998, only 0.51 percent of the 4.6 million visitors coming into the country came for conventions, but 46.5 percent came for business purposes.

Most companies still prefer organizing their own meetings and conventions to hiring professionals to organize them, Iqbal said.

"Out of 945 MICE events held in 1997, less than 100 events were organized by professional event organizers," he said.

Iqbal regretted the government's lack of attention to the industry, claiming that it should have promoted the industry by putting PCOs in charge of organizing the Inter-Parliamentary Union meeting held in October, rather than assigning it to a national committee.

Future

The future holds hope of a better world for many of us. For those in the tourist industry, it holds the hope of an economically and politically stable country.

But the hope hinges largely on the government's ability to improve the country's image in the eyes of the world.

One of the Ministry of Culture and Tourism's roles in the industry is to help promote Indonesia as an attractive tourist destination.

"It's my job to create an image of Indonesia that is beautiful, safe and appealing," Ardika said.

The industry, on the other hand, is promoting Indonesia through its hotels and package tours.

Yet the efforts, however extensive, cannot be successful unless the environment supports it, the deputy minister for marketing and international relations, Udin Saifudin, said.

"Tourism cannot move forward on its own without the support of other factors such as security, accessibility and the economy," he said.

While the 2001 state budget for tourism may be small compared to that of other countries, the ministry will concentrate on promoting Indonesia in international travel marts and inviting tour operators to come and see for themselves the state of the country, Ardika said.

A limited budget, however, would force the ministry to focus its promotion on Indonesia's major markets, such as the member countries of the Association of Southeast Asian Nations (ASEAN), the Asia Pacific region and Europe.

"The potential for the Indonesia tourist industry is very large and it isn't just a hypothesis as it has been proven before," Pontjo said

The questions to ask now, he added, were how did Indonesia do it before -- and how will it be able to do it again.