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Jakarta Post

Supporting fundamental factors for tourism in Indonesia

Richness in tradition and diversity is what has made Indonesia popular with for a long time

Mufti Faisal Hakim (The Jakarta Post)
Jakarta
Wed, October 2, 2019

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Supporting fundamental factors for tourism in Indonesia

Richness in tradition and diversity is what has made Indonesia popular with for a long time. Being one of the largest maritime countries in the world – crossed by the equator and the Ring of Fire – has enabled Indonesia to offer not only active volcanoes but also beautiful beaches and outstanding scenery. On top of that, Indonesia has at least 652 active languages spread across 34 provinces within 17,508 islands, according to 2017 Education and Culture Ministry data. Against this backdrop, it is easy to assume tourism is a big gem and a sector that has strong potential to boost the economy.

Strong fundamentals, strategic topography and a solid commitment to building the tourist economy are proven strengths over the last few years. International tourist visits to Indonesia doubled over the past eight years, according to Statistics Indonesia (BPS) data. Back in 2010, the average number of international tourists reached only 583,579 visits per month, while last year the number reached 1.3 million visits per month. Improvements in infrastructure have been a substantial factor in boosting the tourist sector, including hotel and transportation improvements.

The number of starred hotels also grew significantly in the past eight years, in line with the increasing number of international tourists, BPS data shows. By 2018, there were 3,314 starred-hotel in Indonesia, while the number only hit 1,306 in 2010. Airport quality and safety classifications also improved as evident in, for instance, Kualanamu International Airport in Medan, North Sumatra, and Terminal 3 of Soekarno-Hatta International Airport in Tangerang.

In order to maintain sustainability of such growth, the government has been more serious about developing the tourist sector over the past few years. Since 2015, growth in hotels and the food and beverage sector has steadily increased. The sector grew 4.31 percent year-on-year (yoy) in 2015, 5.17 percent in 2016, 5.39 percent in 2017 and 5.66 percent in 2018, according to BPS data. Meanwhile, the state expenditure for infrastructure was set at Rp 423.3 trillion US$29.79 billion), based on the 2020 state budget. The state budget also shows that the Finance Ministry and National Development Planning Agency (Bappenas) have committed to supporting the development of five new “super priority” tourist destinations, namely Lake Toba, Borobudur, Mandalika, Labuan Bajo and Likupang.

In order to speed up the development of international-standard tourist destinations, the Finance Ministry readied Rp 9.35 trillion so that they can be up and running for the public by the end of 2020. Furthermore, since tourism is not only about infrastructure, the government will also build 306 new tourist information centers and educate 103,720 workers in the tourist industry. This is important since a report from the World Economic Forum this year shows that, among 140 countries, Indonesia is in the bottom 20 percent in several key points in infrastructure, namely environmental sustainability, tourist and information centers and port infrastructure.

There are other measurable factors we have to understand to improve tourism from this point forward. First, the seasonal occupancy rate. In Indonesia, the number of international tourist visits normally spikes during the holiday season from June to August and during the year-end season in December. Using a time-series trend, the explained condition has happened almost every year for the last decade. However, data shows the occupancy rate for starred-hotels drops significantly every Idul Fitri holiday.

Between 2016 and 2018, July was one of the lowest performing months even though it was peak holiday season. The trend also occurred this year when the occupancy rate in June – when Idul Fitri was celebrated – dropped to 43.53 percent. This is a precaution for the hotel business since the next Idul Fitri will be at the end of May, potentially dragging down the performance of the hotel business during the early peak season. The hotel industry needs a specific strategy to maintain performance when it comes to the month of Ramadan, which is observed before Idul Fitri celebrations, since several tourist destinations and points-of-sale are usually closed down during the month, including night clubs, bars and restaurants.

It is clear that the performance of the hotel industry strongly depends on domestic tourists. Tourism Ministry data shows that in 2018, international tourist visits, which reached 15.8 million, were only at 5.21 percent compared to domestic tourists visit. This means that, in terms of market size, the hotel industry still needs to focus on the domestic market, especially for business purposes, such as for meetings, incentives, conferences and exhibitions (MICE).

However, the potential to explore the domestic market recently just got disturbed by another factor: air transportation. Earlier this year, prices of flights – especially domestic ones – skyrocketed within the first quarter, creating many multiplier effects.

In the first quarter of this year, the transportation sector decelerated 10.1 percent yoy, a 9.4 percent yoy decrease. Domestic passenger growth plunged 24.4 percent yoy in May. The number of international passengers grew slower at 3.4 percent yoy, compared with 7.2 percent yoy growth last year. As a result, international tourist visits grew slower, with 63.9 percent of international tourists entering Indonesia through the air, according to BPS data.

Having said that, we understand that tourist development needs sustainable and comprehensive support from several areas. Indonesia, which is currently 40th globally and 11th in the Asia-Pacific in the WEF Travel & Tourism Competitiveness Index 2019, will have more options on offer when the super-priority destinations are ready to operate. Yet, it must be supported not only by infrastructure but also through a pricing strategy on seasonal programs (when), marketing campaign (why, what), market penetration (who) and airfares (where & how).

Mandiri believes the tourist industry has a lot to offer and explore, hence estimating the hotel accommodation and food and beverage industries to grow positively by 5.8 percent yoy in 2020 and 5.9 percent yoy in 2021.

The writer is an industry analyst at Bank Mandiri.

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