Jakarta. Investing in the hotel industry has become more challenging in Indonesia as digital disruption continues to upend traditional business models. The industry is facing a surplus of available hotel rooms in major cities and inadequate certification standards.
On Thursday (23/11), top players in the industry, including Hariyadi Sukamdani, chairman of the Indonesian Hotels and Restaurants Association (PHRI), gathered at Hotel Week Indonesia, an annual hospitality exhibition and conference in the Asia-Pacific region.
Hariyadi, whose family controls Indonesia's oldest hotel chains Hotel Sahid and Hotel Sahid Jaya Internasional, said it has been inevitable that in the hotel industry, digitalization has played important role, especially in boosting hotel room reservations.
"Reservations of rooms via online services, for example, has grown about 15-20 percent per year. For some hotels, they rely 90 percent of their reservations from online booking platforms," he spoke at a discussion session on Thursday that is part of a three-day event.
However, he reiterated his previous comments at a press conference on Nov. 13 that this good news comes with a catch: online travel agencies charge higher commissions than do conventional travel agencies. Foreign-controlled agencies also appear to be failing to pay income taxes, drawing the attention of the national tax office, which targets local hoteliers instead of the online agencies.
"The government must issue regulations that require foreign-controlled online travel agencies to have locally incorporated entities here to allow a fair game," said Hariyadi, who is also the chairman of influential business association Indonesian Employers Association (Apindo).
According to PHRI data, there are about 2,300 starred hotels in Indonesia, which altogether provide about 290,000 rooms. Meanwhile, data from the Central Statistics Bureau (BPS) shows that there are about 16,000 non-starred hotels all over Indonesia, which offer a combined 285,000 rooms.
However, rooms at villas, homestays and guest houses have not been included in either study.
According to Hariyadi, Indonesia offers about 1 million rooms for either domestic and foreign tourists and "the number is the biggest in Southeast Asia."
On Nov. 13, Hariyadi said Jakarta, Bali, Yogyakarta, and Bandung (West Java) have shown signs that they are experiencing over-supply conditions, marked by declines of room rates as the result of pricing wars among hoteliers. Makassar is also on yellow alert, he said.
Javier Salgado, executive vice president at Saphir Group, a family-owned hotel developer and operator, said online travel agencies are actually not a new thing in Indonesia as they have been present in the market for about 10 years from today.
"It is just nowadays, they saw an exponential growth for their use," he said.
In responding to the challenges from online travel agencies, Salgado, whose Saphir Group has a number of hotels in Bali and other key tourism destinations in Indonesia and abroad, said the group has to "adapt or die" as they realize they cannot fight the influence of online travel agencies (OTAs) toward room reservations and bookings.
"Now you put on Google: 'hotel in Bali,' one to four search results are from OTAs. I cannot compete with those. So, I rather work on good terms with OTAs, [rather than] to fight the gangs," he said.
Fabrice Mini, director of operations for Indonesia, Malaysia and Singapore at Accor Hotel, an international hotel chain, said Indonesia is still very liberal in regards to regulations in the hotel industry. He said in other countries there are floor rates for room prices for starred hotels.
The archipelago nation does not have that, "whereas we need to balance the supply and demand," Fabrice said.
He pointed out that ten years ago, tariffs for four-star hotels in Yogyakarta ranged at around Rp 600,000-Rp 650,000 ($48) per night, though now prices have declined to about Rp 400,000 to Rp 550,000.
"That is despite all costs, from construction to operational costs have increased," he said.
Fabrice, whose Accor group plans to operate 200 hotels in the country in the next few years, said the hotel industry may face stagnant growth over the coming years.
The same cloudy overview was also conveyed by the chief executive officer of local hotel chain Adonara Hotel Group Ruben Amor, who said the growth of the hotel industry is slowing nowadays. He said investors are holding their spending to wait for a better investment climate.
"International hotel chains can weather this condition better because they are focused in managing the business," he said, adding that the wait-and-see approach for hotel investment is also adopted even by Indonesian state-controlled companies. "It is sad to see this, because they have financially a larger capital, but they don't want to expand," he said.
Hariyadi of PHRI said he was worried that without serious government attention to the industry, the target of attracting 20 million foreign tourists by 2019 may not be feasible. Last year, Indonesia recorded about 11.5 million foreign tourists visiting the archipelago nation, according to BPS data.