We see high revenue contribution from Asian hotels: Four Seasons

In line with an upward trend in economic growth over the past few years, tourism and business travel have started to grow as well, resulting in positive implications for the hotel business here. The Jakarta Post's Tubagus Arie Rukmantara talked recently to Paul Iacovino, Four Seasons vice president of marketing for Asia Pacific, on the outlook for the hotel business in Indonesia. The following are excerpts from the interview:

Question: How do you see the hotel business here in the wake of the terror attacks that have taken place in recent years? Answer: I see two distinct types of customers that come here. One is those who are particularly going to Jakarta. They have business reasons that require them to come here. But, unfortunately, in the last two or three years, there have been various incidents that are particularly worrying to Western travelers.

However, these travelers are staying away from Indonesia for less and less time. Two years ago when the bombing at the Marriott happened, people stayed away for the whole month. But after that, people have been coming back very quickly. These people have to come here for business reasons because the country has so much potential for growth in every sector.

In fact, in Jakarta, the return of foreign travelers has been stronger than ever. Our statistics show that hotel occupancy is stronger and total numbers of travelers are up quite significantly year over year.

Meanwhile, those who go to Bali are the travelers who come because they want to come. After the Bali bombing, it was only the Asian travelers who stayed away for a short period of time, while European and American travelers remained reluctant to came.

The U.S. travelers still have a traveler advisory from their government and that has been very significant for the Four Seasons because, although we are a Canadian company, our single biggest source of leisure business heavily depends on U.S. travelers. So when they stop coming, that really hurts the Four Seasons more than any other five-star hotels.

That's why on a business level, we are recovering much more slowly.

In the past few years, many international chains have opened hotels here. How do you see the competition between five-star hotels? In a market like Jakarta, I think the hotel business here is overbuilt compared to the demand in the market. When you look at the hotel business now, hotels are not extremely busy. Besides two or three very well established hotels, of which two are Indonesian brands, the other hotels are really fighting for market share.

Hotels are not seeing big enough growth, although this year's growth has been quite good.

So, to me, I'm not so sure that I would be keen to see additional hotels in Jakarta.

What is the impact of the Jakarta market being overbuilt? Will we see hotels being closed down? No, I don't think so. I think the operating costs here are low enough that people seem to be able to run hotels at less than the optimum level but still keep their businesses running.

I think the major impact is on the profitability of the existing hotels. The question will be, can you charge a price that is really more competitive.

For us, our strategy is that we build urban hotels in financial centers. So you will find our hotels in the major capitals in the world, but you won't find us in remote cities.

We look at Jakarta as a significant world business capital, a regional business capital. Therefore, we need to be here because we know our customers will come here.

But the prices that we charge our customers here are far lower than what we charge in most other Four Seasons hotels in the world.

If you compare Jakarta and other capitals of Southeast Asian countries, like Singapore, are we lagging behind in the development of the hotel business? I don't feel that way. Every major brand is here in Jakarta. Most of the international players are here. I don't think Jakarta is lagging behind. But I do think that we need more business travelers to come. The good news is, that it is happening.

What I see from the oneness of your new government with business, I would be optimistic that the city will match other Southeast Asian business centers.

Do you have any expansion plans here? Frankly, no. We have opened our hotels in Bali at Jimbaran and Sayan. Now we have over 200 guest rooms in Bali, which for us is a lot. We are a company that focuses on small-size properties. In Tokyo, we have only 57 rooms, but in Jakarta we have 365 rooms. This is a large hotel for us.

Therefore, our business development plan for now is to get this one to work well.

In your company's first-half report, you mention that revenue from Asia has boosted the Four Seasons overall revenue. How do you see the revenue outlook from this county? Even though the Jakarta hotel is not running full, we have tripled our business over the years. We could double it or triple it again in future years.

I think we are optimistic that our Asian hotels will contribute a lot to our revenue. In 2004, Asia's growth led company growth. And we've opened hotels in Mumbai, Beijing and Shanghai, and Hong Kong. We've set ourselves up for really strong growth from 2005 to 2007.

However, Jakarta will see slow growth because of pricing. When we opened in Hong Kong, pricing began at around US$300 per night, but here our pricing begins at around $150. Therefore, the Jakarta hotel won't have a significant impact on revenue. But again, its existence is important. We have invested $10 million to improve our facilities, which it is expected will attract Indonesian travelers to come on weekends because we expect more domestic customers to come.

In Bali, the return of American leisure travelers, who are less price sensitive than most travelers, and they're also very familiar with our brand, will boost our revenue. But we need the U.S. government to take Bali out of their travel advisory.