Fri, 03 Dec 1999

Outlook still dim for Jakarta hotel industry in 2000

JAKARTA (JP): The hotel industry in the capital expects a slow recovery in 2000 despite signs of improvement in the country's economy and social and political climate, according to consultant firm Horwath Asia Pacific.

The company said in its year-end report most hoteliers still strongly believed Indonesia's image would remain bad, despite the public's positive response to the establishment of a new government.

"Human rights abuses ... coupled by the slow economic recovery and worsened by issues to do with referendums, federalism and separatism have changed Indonesia into a less than attractive business destination," according to the report.

Jakarta hoteliers also feared such political issues could further put downward pressure on the already low demand.

The number of hotel rooms in Jakarta has grown tremendously during the last couple of years. However, demand for them has not been able to keep up, resulting in a reasonably constant over supply.

Even before the economic crisis, hoteliers' revenue per available room was always below the optimum level, the report said.

As most business activity slumped as a result of the economic crisis which hit the country in mid-1997, the hotel industry has been facing a serious financial downturn and tighter competition.

Jakarta has been considered as a less desirable destination, hence its visitors numbers have begun to drop.

Hoteliers have been struggling to keep their operations running amid skyrocketing operational costs, by cutting their costs. Revenue is being generated from other services such as food and beverages outlets and laundry.

In order to increase revenue and diminish the effect of competition, hoteliers are using room rate differentiation tactics and special packages to offset customers' stronger bargaining power amid unstable currency exchange rates, according to the report.

The report said hotels have engaged in large-scale efficiency measures such as recycling paper for office use, closing down floors and implementing a multiskilled staffing plan to minimize the impact of the crisis.

Despite all the hard work, revenue has declined quickly while operational costs and expenses have increased, it said.

Luckily, the existing hotels should not have to worry about threats from new entrants, as the latter are expected to delay, if not cancel altogether, their projects due to problems like the increasing costs of new hotel developments, financing difficulties, fragile cash-flow projections and the prolonged bank restructuring process.

The largest threat, according to the report, is serviced apartments and rented condominiums, which have become comfortable alternatives for long-staying visitors, especially those traveling with their families.

The report said shrinking demand, the increasing bargaining power of customers and suppliers and increasing operational costs have contributed to problems facing the industry.

"It makes it even more difficult to survive in a market which has been over supplied since even before the crisis," the report said.

The report said the accumulation of the pressures has ultimately transformed the business environment, once believed to be dynamic, into a fiercely competitive battleground.

Faced by the fact that political and economic situation remains uncertain, hoteliers expect a slow recovery process in the year 2000. (cst)