DESPITE total foreign arrivals increasing by a small 3% in the first 5 months of 2019, Indonesia’s 2 key markets of Jakarta and Bali are hurting, down monthly from January to May (down 12%) and February to May (down 2%) respectively.

The government is struggling to achieve their ambitious forecast of 20 million foreign arrivals in 2019 with the lowest annual increase in recent years. A few strategic plans being discussed by the Ministry of Tourism to boost tourism arrivals include: (1) further optimizing the low-cost carrier terminals at Soekarno Hatta (terminals 1 & 2) on the back of a solid 21% increase in LCC airline travel in 2018, by comparison only 5% growth was recorded for full-service carriers; (2) using neighboring countries such as Singapore and Malaysia as tourism hubs to promote Indonesia as a side visit; and (3) revitalizing existing airports suffering capacity constraints such as a rumored new terminal and runway at Soekarno-Hatta and a new airport in North Bali.

The foreign tourist arrivals growth to Indonesia in the first half of 2019 was fueled by a surge of inbound tourists from Malaysia (up 23% YOY), Singapore (up 14% YOY) and India (up 10% YOY). The increase in Malaysians and Singaporeans coincides with the government’s initiative to boost border tourism and is driven by increases through the ports of Tanjung Uban (Bintan) up nearly 60% / 100k people and “other water gates” which are not specified, which increased by a whopping 136% / 320k people in the first 5 months of the year. The Sumatran airports also fared well, with Kualanamu (Medan) up 10% YOY, Minangkabau (Padang) up 24%, Sultan Syarif Kasim II (Pekanbaru) up 33% and Sultan Mahmud Badaruddin II (Palembang) up 68%.

It is understood that many factors have contributed to the slowing in Chinese arrivals growth including a continuing backlash against Bali’s shutdown of zero-dollar tourists, the weakening in the Chinese Yuan, constantly evolving regional resort market and improvements in domestic tourism infrastructure. The net result was a mere 2.3% growth for Chinese arrivals, most of whom went to Bali, but some helped boost arrivals to Sam Ratulangi Airport (Manado) up 11% YOY. India has soared up the ranks becoming the 5th biggest contributor to foreign arrivals YTD May 2019. The growth started back in 2016 with the commencement of direct flights from major cities in India to Jakarta and Denpasar. It is just the beginning.

Hotel Performance, Jakarta & Bali H1 2019

The major factor affecting Jakarta & Bali’s hotel performance in H1 2019 – arguably across Indonesia – were the games being played by the duopoly of local airlines servicing Indonesia’ domestic flights, at the expense of Indonesians. Prices were hiked, Air Asia mysteriously disappeared from major OTAs and passenger numbers plummeted. YTD May 2019, Jakarta’s Soekarno Hatta Airport reported a 19% decline in passengers on domestic routes whilst Bali’s Ngurah Rai Airport recorded a 14% drop in passengers on domestic routes.

Another factor that contributed to a fall in domestic passenger numbers during the Lebaran exodus, Indonesia’s largest annual holiday period, was the opening of the new Trans-Java toll road – or is it chicken & egg…? On the flipside, passengers on international routes to Soeta showed only a slight fall of 1.1%. Jakarta’s hotels in H1 experienced a decline in both occupancy and RevPAR, down 4.4% and 3.1% respectively.

Fortunately, ADR enjoyed a slight increase of 1.4%. Flight prices, the general election in April and the subsequent riots, followed by the Ramadhan month and Eid al-Fitr, all happened in the first half of the year and negatively affected performance with hoteliers struggling to maintain last year’s numbers. The worst month was May with occupancy plummeting by 19% YOY, resulting in an 18% drop in RevPAR. As the graph indicates, the ADR performance in Jakarta is quite stable month by month, ranging from IDR 1,016,632 to IDR 1,042,124.

Less domestic dominated, Bali airport’s decline in passengers on domestic routes was almost balanced by an increase of 12% in passengers on international routes. Several airlines have opened new routes, including Garuda Indonesia’s London-Bali route (which will now stop-over in Medan to service potential increases in tourism to Lake Toba), VietJet’s Ho Chi Minh-Bali route, Turkish Airlines Istanbul-Bali route and Malindo’s Adelaide-Bali route.

Driven by the cancellation and rescheduling of domestic flights, the number of planes arriving in Bali fell by 5% YOY. Bali’s YTD hotel market performance reflects all the above: occupancy down a small 2.4% while ADR was up a large 14% (more foreign, less domestic guests) with a resultant strong upsurge in RevPAR of 11%.

We note: (1) that the sample is not all-encompassing and the story at mid-tier, non-branded hotels was very different with performance savaged by the decline in more price sensitive domestic and Chinese tour group visitors; and (2) the occupancy bump YOY is attribute to the improved January numbers which were terrible in January 2018 following the Mt Agung eruption and airport closure in November 2018.

Bali and Jakarta are chalk and cheese markets and the above graphs, using similar axes indicate the price inelasticity and seasonality of Jakarta v Bali. Looking forward, the market is very optimistic about H2 in Jakarta with President Jokowi being voted back for another 5-year term and improved economic stability forecast + a real focus on tourism from the Central Government. The hotel market in Bali, however, is confused and no-one really knows what to expect over the current high season and for the remainder of 2019.

Jakarta Sub-Markets

The Jakarta hotel market is corporate, and MICE driven, with very little leisure RND generated, limiting weekly/annual occupancy. That said, H1 2019 was more miserable than normal with falls recorded in each submarket across the Big Durian. As mentioned above, this was the result of an election, some riots, Ramadan and Eid (although these also occurred in H1 2018 so that is a spurious argument).

Small ADR improvements were recorded in most sub-markets but insufficient to offset occupancy falls so RevPAR fell in each area other than North Jakarta.  Fortunately, H2 is always better, which will be important to counteract the addition of 2,000 more rooms over the 6-month period.

Despite the overall drop in Bali’s occupancy in H1, there were some regional winners including Ubud and

the Bukit (Jimbaran, Pecatu, Ungasan). As mentioned above, ADR was up for Bali in H1 2019 and as seen here, that was evenly spread across all submarkets. The biggest winner was the Bukit (Jimbaran/Pecatu/Ungasan) which blew it out of the water with a 21% increase in ADR & a resultant 29% hike in RevPAR. Followed very closely by Ubud.

Sleepy Sanur lived up to its reputation, having a difficult first half, with a fall in RevPAR driven entirely by a large decline in occupancy. Overall, the STR sample of Bali hotels recorded improvements in RevPAR in H1 2019, which is encouraging, but arguably not the full picture. [ special]