RUMOURS became reality last month with President Jokowi’s announcement that the capital would be relocated to Kalimantan. Whilst the global media scrambled to locate Balikpapan (yes, it’s different to Bali) and sensationalise the plight of the Bornean orangutan, we got to thinking about the effect it will have on Jakarta hotels’ bottom line.
Government driven room night demand (RND), both FIT and MICE, is integral to Jakarta hotels, so what are hoteliers going to do, how are they going to fill the burgeoning number of rooms, how big is that slice of pie? To estimate the size of the slice, we needed to make some base assumptions;
(1). Base year: 2018 is a pretty good base year with: healthy 5.3% GDP growth; an improved unemployment rate (currently 5.3%); strong foreign direct investment (US$27.8 million) boosted further by a weaker IDR; and the year preceding anational election is typically a strong stable year for hotels, before the tumult of an election year.
(2). DKI Jakarta provincial government will continue to generate room night demand.
(3). Jakarta will always be the country’s beating economic heart.
(4). A significant proportion of MICE RND in Jakarta is government related, including BUMN.
(5). Jakarta has 326 hotels, 46,899 rooms or around 144 keys/hotel (BPS, 2018).
(6). The results in our annual Indonesia Hotel Industry Survey of Operations (purchase here) are demonstrative of Jakarta’s market mix, ADR and MICE covers.
For Rooms: The estimated total government and MICE related RND in Jakarta in 2018 was around 2,113,000 room nights or the equivalent of 5,800 rooms per day or 18 occupied rooms per hotel per day at an ADR of IDR972k (US$68).
For F&B: The estimated total of MICE covers in 2018 both in-house and external guests is around 13,755,000 which translates to around 115 covers per hotel (3* above) per day at IDR215k (US$15) per cover.
Loss: We have created 2 doomsday scenarios, a total RND loss of 25 and 50% of the total due to government and MICE related RND.
Scenario 1: 25% loss equates to a reduction of 528k room nights or 10 completely empty hotels every day and around 3.4 million MICE covers or a total IDR1.16 trillion (US$81 million) of annual revenue lost to Kalimantan.
Room + F&B MICE Revenue
Scenario 2: 50% loss equates to a reduction of more than one million room nights or 20 completely empty hotels every day and around 6.8 million MICE covers or a total IDR2.32 trillion (US$162 million) of annual revenue lost to Kalimantan. It is conservatively estimated that the slice of Jakarta hotels’ revenue lost to Kalimantan is around IDR1.4 trillion annually (2018 values). [traveltext.id/source: Horwath HTL, Indonesia Hotel Industry Study/photo special]